Introduction

Investing in the stock market may be complicated and scary, especially for those new to the world of investing. However, the SBI Long Term Equity Fund makes understanding the complexity of investing easier and more accessible. This fund, run by SBI Mutual Fund, provides investors with a clear approach to long-term wealth growth via diversified stock investments. With a focus on generating stable returns over time and the backing of a recognized fund house, the SBI Long-Term Fund offers investors a simple yet effective way to participate in the potential development of the stock markets.

In this article, we will closely study the merits and demerits of investing in this fund scheme. Meanwhile, it will also provide insights into the mistakes that should be avoided while investing in it. Let us start with our observations.

Pros & Cons of Investing in SBI Long Term Equity Fund

Investing in the SBI Long Term Equity fund Scheme can provide several benefits as well as some cons. Here is a full explanation of the advantages and disadvantages.

Let’s start with learning the advantages in simpler words:

Long-Term Growth Potential

As the name implies, the SBI Long-Term Equity Fund is largely focused on long-term wealth growth. It invests primarily in equities and stock-related products, to generate significant returns over a longer time horizon.

Diversification

Investing in SLTEF provides investors with exposure to a diverse selection of stocks from various industries. This diversity reduces specific risks connected with certain equities or sectors, potentially improving overall portfolio stability.

Professional Management

SBI Mutual Fund, one of India’s largest and most recognized fund firms, hires professional fund managers to handle SLTEF. These specialists perform extensive study and analysis to make knowledgeable investing judgments, which can provide higher returns than individual stock selection.

Now that we know the pros of investing in this scheme let’s discuss the cons as well. 

Market Risk

SLTEF, like other equity-oriented funds, is subject to market risk. Stock market fluctuations can influence fund performance, potentially resulting in losses, particularly in the near term. To reduce this risk, investors must be prepared for volatility and commit to a long-term investing strategy.

No Guaranteed Returns

Investing in SLTEF does not provide fixed or certain returns. The fund’s performance is determined by market circumstances, economic variables, and the fund manager’s actions. It may not always be consistent with investor expectations.

Expense Ratio

Mutual funds incur expenditures for fund management, administration, and other operational charges, which are expressed as an expense ratio. While the SBI Long Term Equity Fund’s expense ratio is normally competitive. It is nevertheless a cost that may reduce profits over time, particularly during periods of poor market performance. 

Why Invest in the SBI Tax Plan?

Investing in the SBI Tax Plan, an Equity Linked Savings Scheme (ELSS), can provide many benefits to investors. Here are some reasons why investors could consider investing in the SBI Tax Plan.

Tax Benefits

The key reason investors choose the SBI Tax Plan is to profit from Section 80C of the Income Tax Act of 1961. Investments in ELSS funds, such as the SBI Tax Plan, are eligible for a deduction of up to Rs.1.5 lakhs from taxable income per fiscal year. This gives investors the option to reduce taxes while potentially earning larger profits on stock investments.

Long-Term Wealth Creation

ELSS funds, such as the SBI Tax Plan, have a mandated three-year lock-in period. While this may hinder liquidity in the short term, it encourages investors to consider long-term investment strategies. Investing in the SBI Tax Plan for the long term helps investors to take advantage of compounding and ride out market volatility, potentially resulting in wealth building over time.

Flexibility

Investors in the SBI Tax Plan can make lump-sum investments or Systematic Investment Planning (SIPs). SIPs allow investors to invest a certain amount every month, allowing them to take advantage of rupee-cost averaging and potentially reduce the impact of market volatility on their assets over time.

Furthermore, there are varied fund schemes of the SBI Mutual Fund which are tailor-made for different investors. Among them, the SBI Energy Opportunities Fund has shown excellent performance. With an AUM (Asset Under Management) at Rs6,546.62 Cr as of 29.03.24. This number reflects the trust of the investors in this scheme. As we move further in the evolving era, the energy sector is predicted to flourish. This concludes that this particular sector has got a lot of growth potential shortly.

5 Common Mistakes to Avoid While Investing in the ELSS Scheme

To get the most out of ELSS, investors should avoid a few typical mistakes. Here are five such errors:

Investing just for tax savings purposes

• Viewing ELSS primarily as a tax-saving instrument ignores its core function as an equity mutual fund.
• Investors should prioritize fund performance, investment strategy, and alignment with financial objectives over tax benefits alone.
• Neglecting other essential factors including risk profile, investment horizon, and fund management quality might result in poor investing selections.

Ignoring investment horizon

• ELSS funds need a three-year lock-in period, which promotes long-term asset growth.
• Investing without considering the investment horizon, or hastily redeeming investments after the lock-in period, might reduce possible profits.
• Long-term investment horizons are great for equity investments since they allow investors to benefit from compounding gains while also mitigating market volatility.

Not diversifying across funds

• Putting all ELSS assets in one fund exposes investors to unnecessary concentration risk.
• Each ELSS fund has its investing strategy, portfolio structure, and risk profile.
• Diversifying across various ELSS funds helps investors mitigate risk while also possibly benefiting from diverse fund managers’ knowledge and strategies.

Pursuing Short-Term Performance

• When picking ELSS funds, relying simply on historical short-term performance might be risky.
• Past performance may not correctly foretell future outcomes, and pursuing short-term gains might result in frequent fund changes, which incur additional charges and taxes.
• Investors should value investing philosophy, stability of performance over market cycles, and fund management track record above short-term results.

Not reviewing portfolios regularly

• Regular monitoring and assessment of the ELSS portfolio are required to ensure alignment with financial goals and market circumstances.
• Failure to assess the portfolio regularly and rebalance it as needed might lead to a mismatch between investing strategy and objectives.
• Market swings, changes in economic situations, and changing financial goals may need modifications to the ELSS portfolio over time to optimize.

Conclusion

Ultimately, investing in the SBI Long-Term Equity Scheme provides investors with a simple way to participate in the stock market’s future growth while receiving tax benefits under Section 80C. By focusing on long-term wealth development, diversification, and competent management, investors may capitalize on the fund’s potential for consistent long-term gains. However, frequent pitfalls to avoid include focusing primarily on tax savings, ignoring the investment horizon, failing to diversify among funds, pursuing short-term performance, and failing to do regular portfolio reviews.

Those wanting a disciplined approach to investing can choose a Systematic Investment Plan (SIP) in this scheme, which can give the benefits of rupee-cost averaging and long-term wealth growth. Staying committed to a SIP allows investors to navigate volatile markets and achieve success.