SBI Mutual Fund to launch SBI Quality Fund; who should consider this long term equity scheme

SBI Mutual Fund has filed draft documents with SEBI for the launch of its latest equity-oriented scheme — the SBI Quality Fund, an open-ended mutual fund that focuses on investing in high-quality companies with strong fundamentals. Designed for long-term investors seeking consistent growth rather than short-term market gains, the fund will identify and invest in businesses with stable earnings, strong governance, and sustainable competitive advantages. Fund objective The primary objective of the SBI Quality Fund is to generate long-term capital appreciation by investing in equity and equity-related instruments of companies identified based on the Quality Factor. The scheme, however, does not guarantee returns. It will be benchmarked against the Nifty 200 Quality 30 Total Return Index (TRI), which includes companies screened for superior financial metrics such as return on equity, debt-to-equity ratio, and earnings stability. This makes it an appropriate reference point for measuring the fund’s performance. The fund will be open-ended, allowing daily redemption and switches at applicable NAVs. It will offer Regular and Direct plans, each with Growth and Income Distribution cum Capital Withdrawal (IDCW) options. The default option will be Growth, while IDCW distributions below ₹150 will be automatically reinvested. Investment options The SBI Quality Fund will offer multiple facilities to encourage disciplined investing. These include: Systematic Investment Plan (SIP): Available across multiple frequencies—daily, weekly, monthly, quarterly, semi-annual, and annual. MITRA SIP: Allows investors to switch accumulated units to another scheme after a fixed tenure or continue in the same scheme. Systematic Withdrawal Plan (SWP): Minimum ₹500 withdrawal on weekly, monthly, or annual intervals. Systematic Transfer Plan (STP): Enables investors to transfer funds periodically between schemes. Portfolio and fund management According to the draft filing, the fund will primarily invest in equities and equity-related instruments, including derivatives such as covered call options. It may also allocate a portion to debt securities, government bonds, REITs, InvITs, overseas ETFs, and money market instruments like commercial papers and treasury bills for liquidity management. The scheme will be managed by Anup Upadhyay, who also manages the SBI Balanced Advantage Fund and SBI Flexicap Fund. Understanding Quality Funds Quality funds, like the proposed SBI Quality Fund, focus on financially sound, well-managed, and fundamentally strong companies. These funds typically emphasize: High Return on Equity (RoE) and Return on Capital Employed (RoCE) — indicating efficient use of capital. Low Debt Levels — ensuring financial resilience in volatile markets. Stable Earnings Growth — consistent profitability over time. Strong Corporate Governance and prudent capital allocation. Sustainable Competitive Advantage, or an “economic moat,” which helps maintain leadership and profitability. Benefits and risks Advantages: Downside Protection: Quality companies tend to be more stable during market volatility. Long-Term Wealth Creation: Strong businesses typically outperform over longer horizons. Lower Volatility: Quality-focused portfolios are generally less sensitive to market fluctuations. Risks: Underperformance in Bull Markets: These funds may lag during speculative rallies. Concentration Risk: Limited universe of “quality” companies could reduce diversification. Market Risk: Being equity-based, returns are subject to overall market conditions. Investor suitability The SBI Quality Fund is suited for investors with a long-term horizon seeking steady capital growth and lower downside risk. It fits well into the core equity portion of a diversified portfolio, especially for those who value quality and stability over aggressive short-term returns. As mutual fund regulations evolve, including SEBI’s ongoing review of Total Expense Ratios (TER) and distribution costs, funds like the SBI Quality Fund highlight a growing investor preference for transparency, consistency, and quality-driven investing. Peer performance The quality investing theme has gained traction among investors seeking long-term stability through companies with strong balance sheets, consistent earnings, and high return on equity. Here’s a comparison of three quality-focused funds — ICICI Prudential Quality Fund, WhiteOak Capital Quality Equity Fund, and Motilal Oswal BSE Quality Index Fund — based on performance, strategy, and portfolio characteristics. Performance and returns As of October 2025, the Motilal Oswal BSE Quality Index Fund, launched in August 2022, has a longer performance history than its peers. The fund has delivered strong returns of 33.38% in FY23, 16.23% in FY24, and 4.44% year-to-date, outperforming its benchmark, the BSE Large & Midcap TRI, in most periods. In comparison, both the ICICI Prudential Quality Fund and the WhiteOak Capital Quality Equity Fund, which were launched in 2025, are relatively new entrants to the market and do not yet have published performance records. Investment strategy ICICI Prudential Quality Fund follows an active strategy, investing across high-quality companies screened for superior earnings stability and low leverage. It holds 69 stocks, with heavy exposure to technology (23%), financials (18%), and healthcare (17%). WhiteOak Capital Quality Equity Fund also employs an active approach, focusing on 68 stocks with a balanced allocation across technology (20%), financials (19%), and consumer discretionary (17%). It targets companies demonstrating high growth potential with efficient capital allocation. Motilal Oswal BSE Quality Index Fund, in contrast, is a passive index fund that mirrors the BSE Quality Index, maintaining around 30 stocks. It focuses on large- and mid-cap companies like HCL Technologies, ITC, and Nestlé, ensuring exposure to established quality businesses. Portfolio metrics and risk WhiteOak’s portfolio exhibits a higher valuation (P/E 36.3, P/B 6.2) and stronger 3-year earnings growth (25%) than ICICI Prudential’s (P/E 30.5, P/B 5.4, growth 16%). Motilal Oswal’s lower P/E ratio (22.6) and P/B (8.4) indicate a more moderately valued, diversified approach with slightly higher volatility (standard deviation 15.9). ICICI Prudential vs WhiteOak Capital vs Motilal Oswal Conclusion For investors seeking low-cost, rule-based exposure, Motilal Oswal’s index fund offers a transparent entry into the quality theme. Meanwhile, ICICI Prudential and WhiteOak Capital cater to investors preferring active management and broader diversification. All three aim to deliver long-term wealth creation through disciplined investment in fundamentally strong, resilient companies — though their risk-return profiles vary with fund structure and management style.