Frequently Asked Questions

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2 Frequently Asked Questions 1. What is tax planning? Tax planning is an essential part of financial planning. Tax planning is use to reduce tax liability by optimally using the provisions of tax exemptions provided by the applicable tax laws. 2. What is Equity Linked Saving Scheme (ELSS)? An Equity Linked Savings Scheme (ELSS) is a mutual fund scheme that invests in equity & equity related securities. It has a lock in period of 3 years. Therefore investments made in the scheme cannot be redeemed before a period of 3 years from the date of allotment. Investments in an ELSS scheme are eligible for a deduction under section 80C of the Income Tax Act, For Individual/HUF investment upto Rs.100,000/- (along with other prescribed investments) invested in ELSS will qualify for a deduction from gross total income under section 80 C of the Income Tax Act, What are the various types of tax planning instruments? Different tax saving instruments & their comparisons is given below: Particulars PPF NSC ELSS Bank Deposits ULIP Tenure (years) May Min. Invest. (Rs) ,000 Depending on the premium Max. investment under 80 C (Rs) 100, , ,000 1,00,000 1,00,000 Safety/Rating Highest Highest High Risk Low Risk Moderate to High Return % (CAGR) 8.60^ 8.40/8.70^ Interest frequency Compounded annually Compounded half yearly Taxation of interest Tax free Taxable Market Linked No assured dividends/ returns Dividend & capital gains tax free 9.25* Market Linked Compounded Quarterly Taxation of interest NA NA 1 P a g e

3 *Source: State Bank of India; ^Source: Rates incorporates compounding wherever applicable Disclaimer: The comparison of ELSS Vs other tax savings instrument has been given for the purpose of the general information only. Investment in ELSS carry high risk and any investment decision needs to be taken only after consulting the Tax Consultant or Financial Advisor. SBI MF will not accept any liability/ responsibility/loss incurred on any investment decision taken on the basis of this FAQ s. 4. What is SBI Tax Advantage Fund Series II? Salient features of this fund are: SBI Tax Advantage Fund Series II is a 10 year close-ended ELSS Fund has a lock-in of three year The funds collected under the scheme shall be invested predominantly in equity and equityrelated instruments of companies across large, mid and small market capitalization Investment upto Rs.100,000/- (along with other prescribed investments) invested in ELSS will qualify for a deduction from gross total income under section 80 C of the Income Tax Act, What are the benefits of investing in SBI Tax Advantage Fund Series II? Triple Benefits of Investing in SBI Tax Advantage Fund Series II Tax savings Potential capital appreciation through investment in equities Tax free returns Tax Savings: ELSS (Equity Linked Savings Scheme) is diversified equity funds with a lock-in period of 3 years. These funds offer tax benefits (Individual / HUF) under Section 80C of IT Act,1961 according to which, investment up to Rs 1 lakh in ELSS is deductible from taxable income Illustration: Annual Taxable Income Taxable Before Investment in ELSS Maximum Investment Eligible For Deduction in ELSS Taxable Income Post ELSS Investment Tax After Investment Savings NIL The above table has been given for general information only. Investors are advised to consult their Tax/ Financial Advisor before taking decision of Investment. The tax calculations shown above are as per the IT slab applicable to Individual/ HUF assessee for FY exclusive of cess & surcharge. 2 P a g e

4 Potential Capital Appreciation through investment in equities: The scheme endeavors to generate capital appreciation over a period of 10 years by investing predominantly in equity securities of companies across large, mid and small market capitalization. A blend of top-down and bottom-up approach is used to construct a portfolio of equity securities. No Investment Bias: The scheme may invest in large, mid & small capitalization stocks in any proportion. Equity securities, as an asset class, are considered to be high on risk but at the same time also have the potential to deliver relatively higher returns. SBI Tax Advantage Fund - Series II will be an actively managed fund, which will adapt to changing market scenario. Tax Free Returns: The capital appreciation generated in SBI Tax Advantage Fund - Series II would be tax free for the investors (as per current tax laws) Also, the dividends (if any) declared in this scheme are tax-free. (as per current tax laws) 6. What is the investment universe of SBI Tax Advantage Fund Series II? Investment under the Funds shall be as under: a. The funds collected under the scheme shall be invested in equities, cumulative preference shares and fully convertible debentures and bonds of companies. Investment may also be made in issues of partly convertible debentures/bonds including those issued on rights basis subject to the condition that, as far as possible, the nonconvertible portion of the debentures so acquired or subscribed shall be disinvested within a period of twelve months from their acquisition. b. The scheme shall ensure that funds of the scheme remain invested to the extent of atleast 80% in securities specified in clause (a) above. The Fund shall strive to invest their funds in the manner stated above within a period of six months from the date of closure of the plan. In exceptional circumstances this may be dispensed with by the fund, in order to protect the interests of the investors. In exceptional circumstances to protect the interests of the members, this requirement may be dispensed with by AMC. c. Pending investment of funds of a plan in the required manner, the Mutual Fund may invest the funds in short-term money market instruments or other liquid instruments or both. After three years of the date of allotment of the units, the Mutual Fund may hold upto twenty per cent of net assets of the plan in short-term money market instruments and other liquid instruments to enable them to redeem investment of those unit holders who would seek to tender the units for repurchase. 3 P a g e

5 7. What are the fund features? INVESTMENT OBJECTIVE The investment objective of the scheme is to generate capital appreciation over a period of ten years by investing predominantly in equity and equity-related instruments of companies across large, mid and small market capitalization, along with income tax benefit. The funds collected under the scheme shall be invested in equities, cumulative convertible preference shares and fully convertible debentures and bonds of companies. Investment may also be made in partly convertible issues of debentures and bonds including those issued on rights basis subject to the condition that, as far as possible, the non-convertible portion of the debentures so acquired or subscribed, shall be disinvested within a period of twelve months. SBI Tax Advantage Fund Series II is a diversified equity fund. The fund will invest into equity stock of companies listed in India. The fund investment strategy is split into three parts; 1. Asset Allocation: INVESTMENT STRATEGY The fund will invest a portion of its assets into large caps, midcaps and small caps. The proportion of the exposure to each capitalisation will depend on the following factors: Liquidity of stocks under each capitalisation range (e.g. Large caps are more liquid than midcaps and midcaps are more liquid than small caps) Trading volumes Market scenario (It is observed in the past that, in falling markets, large caps fall lesser (in % terms) than midcaps & small caps. It is also observed that, in rising markets, midcaps outperform (in % terms) large caps. 2. Top down approach: The top down approach helps identifying sectors where the portfolio should take exposure. The portion of exposure to each sector (vis-a-vis benchmark) depends on the following parameters: Macroeconomic view Policy changes Global trends Relative valuation of each sectors vis-a-vis other sector Risk premium (Risk-reward ratio) 4 P a g e

6 3. Bottom-up approach: The bottom-up approach helps identifying stocks where the portfolio should take exposure. The portion of exposure to each stock (vis-a-vis benchmark and within the sector) depends on the following parameters: Relative valuation of each stock vis-a-vis other stock within the sector or broader market Management quality Business fundamentals Risks associated with business Ratios (PE, PB etc) Since SBI Tax Advantage Fund is long term equity strategy, the portfolio would be constructed using combination of all the above segments (Asset allocation, top-down approach and bottom-up approach). SBI Tax advantage fund Series II will use asset allocation criteria to decide its bias on capitalisation. SBI Tax Advantage series II may have a portfolio biased to large caps in falling markets. In rising market scenario, the portfolio may have a biased to midcap stocks (this would depend on the relative valuations). The portfolio will have a judicious bias of large caps, midcaps and small caps to benefit the considering the long term investments of investors. BENCHMARK PLANS AND OPTIONS MIN. INVESTMENT SIZE INITIAL PURCHASE BSE 100 Growth and Dividend (Payout) option. Growth will be the default option. Rs. 500 and in multiples of Rs. 500 thereafter. 5 P a g e

7 Instruments Indicative allocations (% of total assets) Risk Profile Minimum Maximum High/Medium/ Low ASSET ALLOCATION PATTERN Equity and Equity related instruments High Debt and Money Market Instrument 0 20 Low to Medium The Scheme shall not invest in derivatives & securitized debt The cumulative gross exposure to equity & equity related instrument and debt will not exceed100% of the net assets of the scheme. EXIT LOAD Nil 8. Why SBI Tax Advantage Fund Series II? Since this a 10 year product with a lock in of 3 years, it gives the sufficient leeway to the fund manager to manage assets with the long term investment horizon. Also, the long term economic story has the potential to deliver superior returns over a longer period. 9. Nomination facility Nomination facility is available only for individuals applying on their own behalf. Applicants can make multiple(maximum 3) nominations. As per Equity Linked Saving Scheme, 2005, in the event of the death of the unitholder, the nominee or legal heir, as the case may be, shall be able to withdraw the investment only after the completion of one year from the date of allotment of the units to the unitholder or anytime thereafter. 6 P a g e

8 10. Calculation of NAV & Repurchase NAV The AMC will calculate and disclose the first NAV of the Scheme not later than 5 business days from the date of allotment. Subsequently, the NAV will be calculated and disclosed at the close of every Business Day. However, in line with the requirements of ELSS guidelines, the Mutual Fund shall announce repurchase price one year after the date of allotment of the units and thereafter on a half-yearly basis. After a period of three years from the date of allotment of units, when the repurchase of units is to commence, repurchase price will be declared on every business day. 7 P a g e

9 Risk factors: Name of Scheme: SBI Tax advantage fund Series II Type of Scheme: A 10 year close ended Equity Linked Savings Scheme Investment Objective: The investment objective of the scheme is to generate capital appreciation over a period of ten years by investing predominantly in equity and equity-related instruments of companies across large, mid and small market capitalization, along with income tax benefit. Asset Allocation: Equity and Equity related instruments 80% to 100%, Debt and Money Market Instrument 0% - 20%. The Scheme shall not invest in Derivatives & Securitized debt Minimum Investment size: Rs. 500/- and in multiples of Rs. 500/- Options: Growth and Dividend (Payout). Load Structure: Entry Load: Not Applicable Exit Load: Nil Terms of Issue: Units would be offered for subscription during the New Fund Offer only The Scheme will offer redemption /Switch out on every business day at NAV based prices after the lock in period of three years from the date of allotment. NAV of the Scheme shall be computed and declared on every business day. In line with the requirements of ELSS guidelines, the Mutual Fund shall announce repurchase price one year after the date of allotment of the units and thereafter on a half-yearly basis. After a period of three years from the date of allotment of units, when the repurchase of units is to commence, Repurchase price will be declared on every business day. Tax Treatment: For Individual/HUF investment made in the scheme will qualify for a deduction from Gross Total Income up to Rs.100,000/- Risk Factors: Mutual Funds and Securities Investments are subject to market risks and there is no assurance or guarantee that the objective of scheme will be achieved. As with any other investment in securities, the NAV of the Units issued under the scheme can go up or down depending on the factors and forces affecting the securities market. Past performance of the Sponsor/AMC/Mutual Fund/Scheme(s) and their affiliates do not indicate the future performance of the scheme of the Mutual Fund. SBI Tax advantage fund Series II is only the name of the scheme and does not, in any manner, indicates either the quality of the scheme or its future prospects and returns. SBI Tax Advantage Fund Series II would be investing in equity & equity related instruments, debt and money market instruments (such as term/notice money market, repos, reverse repos and any alternative to the call money market as may be directed by the RBI). The liquidity of the scheme's investments is inherently restricted by trading volumes and settlement periods. In the event of an inordinately large number of redemption requests, or of a restructuring of the scheme's investment portfolio, these periods may become significant. In view of the same, the Trustees have the right in their sole discretion to limit redemptions (including suspending redemptions) under certain circumstances. The Scheme has to >/= 20 investors and no investor to account for > 25% of the corpus of the Scheme. In case of non fulfillment with either of the above two conditions, the AMC shall comply with the specified SEBI Guidelines in this regard. Statutory details: SBI Mutual Fund has been set up as a trust under the Indian Trusts Act, State Bank of India ( SBI ), the sponsor is not responsible or liable for any loss resulting from the operation of the schemes beyond the initial contribution made by it of an amount of Rs. 5 lakhs towards setting up of the mutual fund. Asset Management Company: SBI Funds Management Private Limited (A joint venture between SBI & AMUNDI). Trustee Company: SBI Mutual Fund Trustee Company Private Limited. A copy of the Scheme Information Document & Statement of Additional Information and Key Information Memorandum along with the application form may be obtained from our ISC s, ISD s, SBI Mutual Fund Corporate Office, SBI MF agents or can be downloaded from website Please read the Scheme Information Document & Statement of Additional Information carefully before investing. 8 P a g e