SBI Tax Advantage Fund Series II: 10 Year Closed Ended ELSS Fund

SBI Mutual Fund has come up with a new fund offer for SBI Tax Advantage Fund Series II which is a 10 year closed ended ELSS (Equity Linked Savings Scheme) fund.

It’s an equity mutual fund which means that it will invest primarily in shares listed on the stock exchange. It’s an ELSS which means that it will give you tax benefits under section 80C. So, the money you invest in this fund will be reduced from your taxable income thereby reducing your tax liability.

The NFO has opened for subscription on December 22nd 2011, and will close on March 21st 2012. The minimum application is Rs. 500, and you can invest in multiples of Rs. 500 after that. Since this is a closed ended fund – you will be able to buy it only during the NFO period, and once the NFO closes units won’t be available for purchase.

The fund has a dividend and growth option, and since it is an ELSS fund – your fund will be locked in for 3 years in which period you won’t be able to redeem it.

The information document says that redemption or repurchase facility will be available after the 3 year lock in period. I have no experience buying into closed ended funds, so I don’t know how the redemption of these work – if anyone has any practical experience or insights on this then please do share that in comments.


SBI Tax Advantage Series II
SBI Tax Advantage Series II

This fund doesn’t offer any differentiation from the plenty of other ELSS funds that exist today, and I was hoping that they offer a lower expense ratio to lure in customers but that’s not the case.

The recurring expenses are going to be 2.50% for the first 100 crores of assets, 2.25% for the next 300 crores, 2.00% for the next 300 crores, and then 1.75% for the balance. I see that the series I of this fund has an asset under management of Rs. 550 crores so that could be a potential pointer on how much Series II could amass, and based on that it looks like the expenses will be relatively high. Expenses of the fund eat into the returns so you want them to be as little as possible.

I think ELSS funds are a great way to utilize the 80C limit because they are equity instruments and have the shortest lock in period among the 80C options, but for this particular fund – I don’t see any reason to invest in it at all.

There are plenty of other ELSS funds that have a fairly long track record, have lower expenses and buying one of those makes more sense to me than getting into this one.

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7 thoughts on “SBI Tax Advantage Fund Series II: 10 Year Closed Ended ELSS Fund”

    1. Sanjay,

      SEBI has mandated of maximum 10 years tenure for all ELSS funds . Hence, any new ELSS fund which is coming in the market is closed ended and the scheme matures after 10 years.You can invest only in the NFO period which means you do not have benefit of SIP investment in these funds. You do have liquidity after three years lock in. There is no exit load but the investor have to bear the proportionate unamortized initial issue expenses for any redemption /switch out made before the date of maturity.

      1. Jitendra – I didn’t understand the aspect about the initial issue expenses. How does that affect someone negatively – could you elaborate a little please?


        1. Manshu,

          In a close ended mutual fund scheme the expenses incurred during NFO is amortized for the entire period. If an investor remain invested till maturity he bears proportionately expense every year. But if an investor exit in between, he will have to bear the expenses remaining unpaid.For e.g. if an investor redeems after five years then remaining five years expenses will have to be paid by him during exit. This is done to discourage investors from exiting before maturity as it increases the expense for those who are invested for the entire period.

          Hope this clears my point…

          1. Thanks Jitendra – I wasn’t aware of this – but how is this done since the investors see a NAV which I assume is what they sell the unit at and there is no exit load if you sell after 3 years, so how are investors penalized?


            1. Manshu,

              To protect long-term investors in a closed-ended scheme, where initial issue expenses are amortised, an investor exiting the scheme before amortisation is completed, have to bear the expenses of the unamortised issue expenses. As per the SEBI guidelines, the AMC shall redeem the units only after recovering the balance proportionate unamortised issue expenses. Closed-ended schemes that convert to open-ended schemes or issue new units should can do that only after they have fully recovered the remainder of the unamortised amount, according to the Sebi circular.

              Hence all expenses are recovered during redemption and ideally should reflect in the NAV.

  1. I agree with your conclusion I don’t see any reason to invest in it at all.
    The key question that an investor should ask when looking at an investment esp. NFO is: Do I need it? Does it fit into my investment plan?
    An ELSS fund for tax and equity purpose. Have I exhausted my 80C limit? If not then an ELSS is an option but then why go for a new fund?
    Often NFOs are pitched cheap vis-à-vis the funds that are already available in the market. But that is not the case. A fund with an NAV of Rs 10 has the same opportunity of making or losing money as its counterpart with an NAV of Rs 100. An NFO doesn’t come any cheaper than an existing fund. But the high NAV speaks volumes about the past performance of the existing fund. It is better to invest in an existing fund with a good track record

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