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SBI Savings Fund provides higher yields with Savings Bank convenience

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Mutual Funds article in Advisorkhoj - SBI Savings Fund provides higher yields with Savings Bank convenience
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SBI Savings Fund is an ultra-short term debt fund which offers instant redemption. Ultra-short term debt funds are money market mutual fund schemes, which invest in very short term fixed income securities like commercial paper, certificate of deposits, treasury bills etc. Money market mutual funds are the safest mutual funds and most liquid of all mutual fund investments.

They can be compared as a high yield savings bank account. While most savings bank accounts pay 4% interest per annum, current money market fund yields are in the range of 7.5 – 8%. They are great investment opportunities for funds lying idle in your savings bank account.

Redemption request in money market mutual fund units are processed within 24 hours on business days and the money is credited to the investor's bank account. Some investors may consider the 24 hours turnaround time a small inconvenience, since you can draw money from your savings bank account by visiting your bank branch banking hours or from ATMs at any time.

With the SBI Savings Fund App investors can now draw money from their investment instantly on all days at any time. The SBI Savings Fund App makes this investments and redemptions from the fund as convenient as savings bank.

Fund Overview of SBI Savings Fund

SBI Savings Fund was launched in July 2004 and has over Rs 3,700 Crores of AUM. The expense ratio of the fund is 1.2%. The minimum investment amount in SBI Savings Fund is Rs 5,000 and the minimum withdrawal amount is Rs 1,000. R. Arun is the fund manager of this scheme. Investors should note that AMC will levy an exit load of 0.1% for redemptions within 3 business days from date of allotment of units. Therefore, they should avoid making withdrawals in the first 3 days after making their investment.

The fund aims to generate income for investors and, as such, is ideal for investors who want to park their funds for the short term; 1 month and up to 1 year. It has a high quality portfolio, as majority of investments are in securities of the highest rating. It has the potential to give relatively better returns than traditional saving instruments. The chart below shows the annual returns of the fund from 2011 to 2016.


Mutual Fund - Annual returns of the fund from 2011 to 2016

Source: Advisorkhoj Research


You can see that, SBI Savings Fund has outperformed the Ultra Short term debt fund category in all years from 2011 to 2015. The annualized returns, every year, from 2011 to 2015 was more than 8%. The fund continued its strong performance in 2016, delivering 8.4% returns and beating the category average. The chart below shows the NAV movement of the fund.


Mutual Fund - The NAV movement of the fund

Source: Advisorkhoj Research


You can see that, the NAV has been steadily growing since inception and had never declined in the past; that is why we say that money market mutual funds have very low risk.

Rolling Returns

The chart below shows the 1 year rolling returns of SBI Savings Fund and the Ultra Short Debt Funds category, over the past 5 years.


Mutual Fund - Rolling returns of SBI Savings Fund and the Ultra Short Debt Funds category

Source: Advisorkhoj Research


You can see that the 1 year rolling returns of SBI Savings Fund has been stable within the 8 – 10% over the last 5 years. Investors should know that, historical returns of a mutual fund scheme do not assure future returns. The future returns of SBI Savings Fund will depend on the prevailing money market yields during the period in question. We look at historical rolling returns of a fund over a sufficiently long period of time, to get a sense of how the fund performed in different market conditions, so that we can form a range of expectations (allowing for some deviations).

The other valuable insight which the rolling returns chart reveals is the performance of the fund manager relative to the average performance of all funds in the same product category. R. Arun has been managing this fund 2011. You can see from the chart above that, SBI Savings Fund (orange line) has done better than average Ultra Short Debt Funds in terms of 1 year rolling returns over the last 5 years.

Instant Redemption

As discussed earlier, instant redemption facility is available for SBI Savings Fund, making investments in this fund as convenient as savings bank account. This facility has been made available for transaction made through SBI Mutual Fund website and SBI Mutual Fund's mobile applications from January 4th onwards. On making the transaction request, either through the website or the app, the money will be credited to your account in minutes. The maximum amount which you can redeem instantly is Rs 2 Lakhs or the redeemable balance (whichever is lower). The redeemable balance will be 90% cent of the current value of available units.

Know more on instant redemption, please check here

Investors should make sure that the bank registered in their folio for SBI Savings Fund Instant Redemption App should allow Immediate Payment Service (IMPS). Investors should also note that, the instant redemption facility is only available for SBI Savings Fund and not for other schemes of SBI Mutual Fund house.

To know more about the SBI Savings Fund App, visit https://www.sbimf.com/en-us/sbimf-saving-fund? or watch the video here https://www.youtube.com/watch?v=hEYpkEp0vv4

You can download the SBI Savings Fund App from Google Play (for Android phones) or from Apple App Store (for your I-Phones).

App Download Links (for iOS):

https://itunes.apple.com/in/app/sbi-savings-fund/id1098508233?mt=8

App Download Links (for Android):

https://play.google.com/store/apps/details?id=com.sbimf.savingsfund&hl=en

Conclusion

SBI Savings Fund is a good investment avenue to grow your idle money (lying in your savings bank account). The Instant Redemption facility offers the convenience of a savings bank. You can discuss with your financial advisor if SBI Savings Fund is suitable for your short term investment needs.

Mutual Fund Investments are subject to market risk, read all scheme related documents carefully.

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Dwaipayan Bose

An alumnus of IIM Ahmedabad, Dwaipayan is a Finance and Consulting professional, with 13 years of management experience, mostly in MNCs like American Express and Ameriprise Financial, both in India and the US. In his last role, he was the Chief Financial Officer of American Express Global Business Services in India. His key interests are building best in class organizations, corporate governance and talent development

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