SBI Mutual Fund’s recent New Fund Offer (NFO) is interesting. It is India’s first active mutual fund scheme built around the domestic automotive and allied business activities theme.
Prior to SBI’s active auto-themed scheme, we have seen some passive auto funds such as ICICI Prudential Nifty Auto ETF, Nippon India Nifty Auto ETF, and ICICI Prudential Nifty Auto Index Fund. There is also an auto-themed overseas scheme – Mirae Asset Global Electric & Autonomous Vehicles ETFs, which invests only in global companies.
Being a product from SBI Mutual Fund, India’s largest asset management company, SBI Automotive Opportunities Fund, is set to attract a lot of attention from investors, and probably their money as well. But, is it worth it? And, why has SBI Mutual Fund added another scheme to its already crowded fund portfolio? Let’s find out.
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Why This Fund?
One apparent reason that has led SBI Mutual Fund to come up with this thematic scheme is the strong performance and projections of the auto sector and allied businesses in India.
Sample this: In FY24, Indian automobile industry recorded 12.5% growth on the backdrop of a robust economic growth of 7.6%. Currently, the automobile sector is contributing around 7.1% to India’s national GDP, providing employment to approx. 3.7 crore people.
India’s passenger car market is expected to grow at a CAGR of 9% till 2027 while significant growth in electric vehicles (EVs) is also projected over the next few years. According to CII, the Indian electric vehicle market size is projected to grow from USD 3.21 billion in 2022 to USD 113.99 billion in 2029 at a whopping CAGR of 66.52%.
But it’s not about projections only. The Nifty Auto TRI, which is the benchmark for all auto funds, including SBI’s NFO, has given an annualized total return of 23.32% in last five years. Moreover, passive auto funds have also done well in one year.
As per Value Research data, ICICI Prudential Nifty Auto ETF has given 68.52% return in 1 year while Nippon India Nifty Auto ETF has given a return of 68.43% in this duration. The direct plan of ICICI Prudential Nifty Auto Index Fund has given a return of 67.70% while the regular plan has given a return of 66.79% in 1 year.
The above data points provide a sound background for the launch of SBI Automotive Opportunities Fund. But, are these not enough to make investment decision? Certainly not. That being said, let’s have a look at some other features of the NFO that you must know before making a decision.
NFO Details
SBI Automotive Opportunities Fund is a sectoral or thematic mutual fund scheme that will invest in stocks of companies engaged in automotive and allied business activities.
The NFO opened on 17th May 2024 and it will remain till 31st May 2024. During the NFO period, minimum subscription amount required is Rs 5000 and in multiples of Re 1 thereafter.
Fund Manager
As per the Scheme Information Document, the fund managers of SBI Automotive Opportunities Fund are Tanmay Desai and Pradeep Kesawan.
Tanmay Desai (age 40) has around 15 years of work experience with over 6 years in Indian capital markets. Since 2008, he has worked as a Research Analyst with SBI Funds Management Ltd. He is currently managing SBI Healthcare Opportunities Fund, which has given over 25% annualized returns in 5 years.
Interestingly, before joining SBI Fund, Desai worked as a Lecturer in Electronics Department of DJ Sanghvi College of Engineering in Mumbai and as a Software Engineer with Patni Computer Systems.
Pradeep Kesawan (age 44) is the second fund manager and he has over 18 years of experience in financial services sector. He is currently a dedicated fund manager for managing overseas investments of the schemes of SBI Mutual Fund that have a mandate to invest in international securities.
Underlying Index
The Benchmark Index of SBI Automotive Opportunities Fund is Nifty Auto TRI. Since its inception on July 12, 2011, this index has given an annualized total return of 18.06%.
As of 20th May 2024, the top five stocks in the index are Mahindra & Mahindra Ltd (19.54%), Tata Motors (16.80%), Maruti Suzuki (16.01%, Bajaj Auto (9.54%), Eicher Motors (5.96%).
Advantages and Disadvantages
Apart from the fact that this NFO has been launched by SBI Mutual Fund, India’s largest AMC, and it will be managed by the manager of a fund, which is doing well, there aren’t many advantages that can be cited at the NFO stage.
However, when it comes to disadvantages, there are many and most them are typical disadvantages attached to any new fund offer of a scheme; such as:
- New Fund Offer, hence no track record
- Past performance of other funds or the underlying index is no guarantee of future returns
- Sectoral projections do not always hold true
- May not suit every investor’s portfolio
- Thematic funds are very risky. Fund’s performance fully dependent on one sector
- Other auto funds have not existed for long or faced many market cycles.
Also Read: Is it good or bad to invest in a New Fund Offer (NFO) of mutual fund?
Final Words
Investing in this scheme just because it has a SBI tag before it could be risky. But if you understand all the risks and yet want to invest then go ahead.
As this is an equity mutual fund scheme, it may be suitable for investors targeting long-term capital appreciation by investing in automotive and its allied business activities.
You may also invest in this fund if you think auto sector is really going to do well. But remember, thematic funds are very risky and you can’t correctly predict the future of any sector.
Financial advisors generally recommend against investing in NFOs. We believe investing in any mutual fund scheme is a very personal decision. It depends on multiple factors such as your risk appetite, risk capacity, asset allocation based on your investment goals etc.
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Disclaimer: The above content is for informational purposes only. Please consult a SEBI-registered investment advisor before investing.
