In our earlier posts on SWPs (Systematic withdrawal plan), we found how SWPs could be a very good option for investors, if they are looking for regular returns by using this method. Today we will analyze the same for another top performing balanced fund with a very long term track record SBI Magnum Balanced Fund - Regular Plan – Growth Plan.
As we have discussed earlier Balanced Mutual Funds invests 65 – 75 % of the portfolio in equities and rest in debt or money market instruments. Balanced funds are subject to equity taxation as these are hybrid equity oriented mutual funds. Long term capital gains, on investments of more than 365 days and the dividends received from balanced funds are tax free. Short term capital gains applicable for investments of less than or upto 365 days are taxed at 15%.
If you want to know more about balanced funds then reading the following articles will be helpful –
Can mutual fund balanced fund be your best bet
Investing in balanced funds versus a portfolio of equity and debt funds
Why balanced funds may be the best investments for new mutual fund investors
What is Systematic Withdrawal Plan (SWP) in Mutual Funds
Systematic Withdrawal Plans or SWP, as popularly known, is a service offered by Asset Management companies in India, which provides investors withdrawal of a specific amount at a pre determined time frequency or date, like weekly, fortnightly, monthly, quarterly, half-yearly or annually.
If you try to understand it properly, this could become the most effective and tax efficient way for you to earn regular returns from your Mutual fund investments.
Let us see some examples of top performing Balanced Funds.
How SWP worked in case of SBI Magnum Balanced Fund
If you had invested
र 10 Lacs in SBI Magnum Balanced Fund – Regular Plan - Growth Growth, 11 years back (July 25, 2005) and withdrawn र 8,000 per month after one year (July 26, 2006), then the current value of your investment would have been र 26.17 Lakhs even after withdrawing र 9.68 Lakhs over a period of 10 years!
We assumed that the monthly SWP withdrawal of
र 8,000 was started after one year (starting date July 26, 2006) from the date of investment (July 25, 2005) and thereafter on the 26th of every month so that each and every SWP amount in the hands of the investor is tax free!
Please look at the image below to understand how we have selected the different options in our research tool to get this result. You can also explore this SWP Research tool to explore SWP return of any fund of your choice.
Source: Advisorkhoj SWP Calculator – SBI Magnum Balanced Fund Regular Growth (Data as on 26/7/2016)
SWP results of SBI Magnum Balanced Fund – Regular Plan - Growth
From the above chart you can see that you would have withdrawn a total of
र 9.68 Lakhs through 121 equal monthly SWP instalments of र 8,000 each, thus, you would have got a tax free return of 9.6% every year. Even after withdrawing a tax free amount of र 9.68 Lakhs over 10 years, the current value of your investment would be र 26.17 Lakhs! The SWP return of the fund is annualised (IRR) 15.21%.
You may Download the cash flow in excel and check
Can SWP take care of inflation?
Inflation is a very vital point when you are planning your investments. In fact, two things are very important in any investment planning – Post tax return and inflation adjusted return - therefore, in this study, we will also analyse what happens when you increase the SWP amount by 10% every year.
Source: Advisorkhoj SWP Calculator with Annual increase (Data as on 18/7/2016)
From the above image, you can see that the investor would have withdrawn a total of
र 14.08 Lakhs through 121 increasing SWP instalments, starting from Rs. 8,000 per month in the first year and ending with र 16,000 per month in the last year. Therefore, he would have got a tax free return of 9.6% in the first year which gradually increased every year and in the last year it was whopping 19.20%. Even after withdrawing a tax free amount of र 14.08 Lakhs, the current value of his investment would be र 18.68 Lakhs! The fund gave an annualised (IRR) 15.13% return. Please check the details here
Please download the cash flow in excel to check how it worked?
Let us now see how the SWP amount increased over a period of time, the increasing withdrawal % on the lumpsum amount and how the value of net investments changed annually post these systematic withdrawals.
You will notice from the above image, how we have increased the SWP amount annually by 10% on the initial investment. You will also notice that during this entire period, the net investment value never dropped from the initial lumpsum investment amount i.e.
र 10.00 Lakhs. It proves that if you remain invested over long period in balanced funds then the trailing returns should be positive.
Now let us see the annual returns of SBI Magnum Balanced Fund – Regular Plan - Growth against VR hybrid Equity Oriented index
You will notice that during the last 11 years, the fund has beaten the VR-Hybrid Equity Index in most of the years excepting in 2008 and 2011 when the markets returns were in negative.
About SBI Magnum Balanced Fund
SBI Magnum Balanced Fund is a hybrid equity oriented fund, popularly known as balanced funds. Launched in December 1995, it is a very popular fund in the Balanced Fund category from one of India’s top AMCs, SBI Mutual Fund. The fund has an AUM of
र 5,184 Crores (As on June 30, 2016). It is one of the best performing Balanced Funds in the industry with quite a long term track record of more than 20 years! Renowned fund managers R. Srinivasan and Dinesh Ahuja jointly manage this fund.
The top 5 stocks that the fund is invested in, are – HDFC Bank, Infosys, SBI, E-Clerx and ICICI Bank. Financial services, IT and Services industry are 3 top sectors that the fund is exposed to.
Lumpsum returns of SBI Magnum Balanced Fund – Regular - Growth
So far we discussed the SWP returns of SBI Magnum Balanced Fund – Regular - Growth and found how amazing the results were. Let us now also examine the lumpsum returns of this fund. Had you invested
र 10 Lacs in this fund 11 years back on July 26, 2005 then the current fund value would have been a decent र 46.56 Lakhs, a CAGR return of 15.00%. For the same period, if this amount was invested in fixed deposits then you would have got only र 23.14 Lakhs, a whopping difference of र 23.42 Lakhs!
SIP Returns of SBI Magnum Balanced Fund – Regular - Growth
Let us know check the SIP returns of this fund. SBI Magnum Balanced Fund – Regular - Growth has also been very good! If you had started a monthly SIP of
र 5,000 on July 26, 2005, then you would have accumulated a corpus of र 14.98 Lakhs, based on NAV of July 26, 2016 whereas you had invested only र 6.65 Lakhs only through 133 instalments of र 5,000 each. During this period the fund has given XIRR return of 14.08%. Check out SIP Return Calculator
If you had started a SIP of same amount in CNX Nifty for the same period then the current value would have been only
र 11.81 Lakhs only with a return of only 10.14% only.
Source: Advisorkhoj SIP Calculator
Please also note that while doing an analysis of SIP returns, we found that, in the long run the SIP returns of balanced funds are comparable to the SIP returns of large cap funds – How SIPs in top balanced funds have created as much wealth as large cap funds
SBI Magnum Balanced Fund – Regular - Growth has given very good SWP returns over the last 10 years or so and may be a good choice for investors looking for regular income from their lumpsum investments in balanced funds by taking moderate risk. However, investors should note that the past performances of mutual funds are no guarantees for future returns. Mutual fund investments are subject to market risk and therefore investors must consult their financial advisors and check if investment in SBI Magnum Balanced Fund is suited for their investment needs based on their risk profile.
Readers interested in knowing more about SWP, may read the following contents –
Mutual Funds are ideal investment option for retirement planning
Mutual Fund systematic withdrawal plans are smart option for income needs
Would you like to read some more SWP fund reviews, please check Fund1, Fund2 and Fund3
Mutual Fund Investments are subject to market risk, read all scheme related documents carefully.