Investors seeking both growth and tax benefits often look at Equity Linked Savings Schemes (ELSS) as a solid option. SBI Long Term Equity Fund, an ELSS offered by SBI Mutual Fund, has emerged as a top choice for wealth creation, with returns surpassing 140 times since its inception. With tax advantages and a strong history of high returns, it provides a balanced approach for long-term investors. Let’s break down what makes this fund a top performer and how it has helped many investors build wealth while saving on taxes.
What is SBI Long Term Equity Fund?
SBI Long Term Equity Fund is an ELSS that primarily invests in equity and equity-related instruments with the goal of capital growth. As an ELSS, it comes with a lock-in period of three years, making it suitable for long-term investors. However, many investors hold onto this scheme beyond the mandatory lock-in, aiming to maximize returns over five years or more.
The fund launched on March 31, 1993, and since then has delivered an annualized return of 17.01%, according to SBI Mutual Fund’s latest data. For investors who started with a small amount, these returns have translated into significant wealth over time.
How Wealth Has Grown with SBI Long Term Equity Fund
Since its inception, SBI Long Term Equity Fund has multiplied investor wealth impressively. For example:
- Investment of Rs 1 lakh at launch: Rs 1 lakh invested at the fund’s launch has now grown to approximately Rs 1.41 crore. This illustrates a wealth growth of 140 times over the years.
- Average annual return: The fund has offered an average annual return of around 17.01% since inception, making it one of the most consistent wealth creators in its category.
This kind of long-term wealth growth shows the power of staying invested in high-performing equity funds over many years.
Performance Highlights: How SBI Long Term Equity Fund Stacks Up
This fund has provided impressive returns across various timelines, consistently outperforming many benchmarks:
- 1-year return: 54.1%, which has turned an investment of Rs 1 lakh into Rs 1.54 lakh.
- 3-year annual return: 27.37%, translating an investment of Rs 1 lakh into Rs 2.06 lakh.
- 5-year annual return: 27.04%, turning Rs 1 lakh into Rs 3.31 lakh.
In comparison to the BSE 500 TRI (the benchmark), SBI Long Term Equity Fund has delivered above-average returns, highlighting its growth potential over different periods.
SIP Returns: A Solid Strategy for Consistent Gains
Systematic Investment Plans (SIPs) have become a popular method for many investors to gain exposure to equity while managing market volatility. SBI Long Term Equity Fund has shown impressive results for SIP investors as well. Here’s how a monthly SIP of Rs 10,000 has grown over 17 years:
- Monthly SIP amount: Rs 10,000
- Upfront Investment: Rs 1,00,000
- Investment period: 17 years
- Total investment over 17 years: Rs 21,40,000
- Total value of investment: Rs 1,05,60,053
This translates to an annualized SIP return of 15.99%, showing how the disciplined approach of SIPs can lead to substantial wealth over time. By investing steadily every month, SIP investors have enjoyed long-term returns with the benefit of rupee cost averaging, which reduces risk.
Features and Key Benefits of SBI Long Term Equity Fund
Here’s what makes SBI Long Term Equity Fund an attractive option for long-term investors:
- Total AUM (Assets Under Management): Rs 28,733 crore as of September 2024, indicating strong investor interest.
- Expense ratio: 1.59% for regular plans and 0.99% for direct plans.
- Minimum investment: Rs 500, which makes it accessible for new investors.
- No exit load: This provides flexibility for investors after the 3-year lock-in period.
The fund is designed with the objective of long-term capital appreciation while offering tax benefits, making it suitable for investors who want to save on taxes while aiming for substantial returns.
Investment Strategy and Top Holdings
SBI Long Term Equity Fund follows a diversified investment approach, with a focus on sectors that drive growth and stability. Some of its key holdings as of recent data include:
- Financial Services: 27.15% of investments, with major holdings in HDFC Bank and ICICI Bank.
- Information Technology: 13.82%, with companies like TCS contributing to returns.
- Consumer Discretionary and Industrials: 12.65% and 12.03%, respectively, with holdings in companies like Tata Motors and Mahindra & Mahindra.
- Energy and Utilities: 7.79%, with Reliance Industries as a key holding.
This sectoral allocation reflects the fund’s strategy of balancing growth-oriented sectors with stability from blue-chip companies. The diverse investment base helps the fund weather different market conditions and sustain performance.
Why SBI Long Term Equity Fund is Suitable for Long-Term Investors
SBI Long Term Equity Fund is ideal for investors who have a long-term view and a moderate to high-risk appetite. The fund’s lock-in period of three years encourages investors to remain invested, which aligns with the market’s tendency to reward long-term growth. However, to truly reap the benefits of this fund, a holding period of at least five years is often recommended.
Due to its higher risk profile, SBI Long Term Equity Fund may not be suitable for those with a low tolerance for risk or a shorter investment horizon. Instead, investors who are comfortable with market ups and downs and are prepared to wait for sustained growth over the years may find this fund to be a valuable part of their portfolio.
Benefits of Investing in an ELSS Fund Like SBI Long Term Equity Fund
An ELSS fund like SBI Long Term Equity Fund offers unique benefits:
- Tax savings: Under Section 80C, investors can claim tax deductions of up to Rs 1.5 lakh by investing in ELSS funds, reducing their taxable income.
- Wealth creation: The fund’s long-term returns demonstrate how investments in ELSS can contribute to significant wealth creation.
- Compounding benefits: Holding for longer than the lock-in period allows investors to benefit from compounding, which can lead to substantial returns over time.
Who Should Consider SBI Long Term Equity Fund?
This fund is suitable for those seeking both tax savings and long-term capital appreciation. It may be ideal for investors who are ready to commit to a medium-to-long-term strategy and can handle market volatility. SIPs can be a good option for new investors, as they help spread investments and reduce the risk associated with market timing.
Before investing, it’s essential to assess your risk tolerance and consult with a financial advisor to ensure the fund aligns with your goals.
