SIP has become beyond a buzzword. Many mutual fund houses have already launched or are on the verge of launching SIP-based mutual fund products. There are even asset management companies that are providing SIP-based mutual fund products.
A systematic investment plan, also known as SIP, is a highly recommended form of investing. It allows people to invest relatively small amounts of money regularly; the amount can be as small as Rs500, and you can set up an automatic payment from your bank account each month.
This gives investors peace of mind, knowing they are setting themselves up for financial success in the long term.
There are several reasons why this type of plan is so useful in the grand scheme of things - firstly, it keeps you organized and consistent with your finances if done right.
Secondly, it keeps you invested by making sure your money is automatically withdrawn in a relatively short period.
And thirdly, it helps to lower your spending because there isn’t that same temptation to pull on credit cards when budgets are clearly laid out and understood ahead of time - all truly winning strategies!
SBI SIPs are one of the best ways to invest in mutual funds and systematically build a financial corpus. SBI Mutual Fund offers different types of SIP plans, which let you save a certain amount of money on a regular interval like weekly/monthly/quarterly and allows you to spread your investment over a longer period.
Investing every week means that your risk is lower and, in turn, helps you grow your financial market as compared to investing only occasionally. This also minimizes the impact of market volatility.
With SBI’s many great SIP schemes, it has never been easier to stay invested in building a financial corpus for a more extended period.
What Is an SBI SIP Calculator?
Want to invest in the best mutual funds through SIP? Before you do, make sure to get familiar with their past performance. With the SIP Return Calculator, you can quickly determine how much money you could have made if you had started investing sooner. This helps in making your financial future more secure.
Mutual fund plans are essential when it comes to saving up money. Investing early is always recommended so that your hard-earned cash works harder for its return.
SBI SIP calculator uses the compound interest formula to calculate potential return. The Compound Interest Calculator considers the number of times compounding is applicable and calculates the potential returns.
Also, the Compound Interest Calculator requires inputs from the user. Hence, the user has to enter the monthly amount they want to invest, the duration of their investment (in years), and their expected rate of return on a SIP.
The SBI SIP calculator also calculates returns based on a regular savings account (non-compounding) over a certain period along with the various kinds of plans, including EPF (Equity Pension Fund), CPSE (Central Public Service Enterprise), or ETF (Exchange Traded Funds).
Therefore, when creating your investment plan, it is prudent to take the time to calculate what your monthly SIP could return as a part of your financial plan.
By calculating your SIP (Systematic Investment Plan) through the SBI SIP Calculator, you can optimize your return by creating a financial cushion for yourself that will allow you to meet short-term and long-term investment objectives.
The State Bank of India offers simple investment plans that are flexible and easy for new investors to understand and participate in with an extremely low initial outlay.
How Does the SBI SIP Calculator Work?
SBI’s SIP calculator provides the users with potential returns based on multiple scenarios. The SBI SIP calculator allows users to deposit their desired monthly contribution amount, how long they mean to save for, and what return they expect to get back on their investment.
The SBI mutual fund calculator can help customers know how much their investment will be worth after a certain period. Customers can enter the amount they want to reach and then tell the calculator what growth rate they aim for.
The tool will then automatically do all the rest, reverse-calculating how much the customer needs to invest each month in reaching a specific savings goal.
The SBI SIP calculator provides the Investment Amount approach and Target Amount approach for estimating the wealth and maturity amount.
Investment Amount Approach
The investment amount approach is based on monthly contribution amounts. This approach will work for prospective investors who have decided how much money they can invest at regular intervals. It’s a handy way of estimating potential SB (SBI Balanced) and other SIP returns over time.
One can follow the below steps to determine the SBI SIP maturity amount using the investment amount approach:
Firstly, decide the SIP amount
Next, enter the expected growth rate
Enter the investment duration in years
Finally, enter the step-up percentage.
(Step UP is a way that investors can increase their investment over time. Investors invest every year by an annual salary increase. Step UP is an increment in the amount of one’s investment. It is generally ‘aligned to the growth of the investor’s income.)
The calculator automatically estimates the potential gains at the end of the duration.
Target Amount Approach
If a person wants to know how big of an SBI SIP they should make every month, they can use the target amount approach. The number will give them an idea of the total amount they aim to get back.
However, one cannot simply use a formula to determine this number because it is based on multiple factors, including the target rate of return, their desire for liquidity, and the current inflation rate.
To calculate the monthly SIP, follow the below steps:
Firstly, enter the expected target amount
Now, enter the expected growth rate
Next, enter the investment duration in years
Finally, set the step-up percentage.
SBI’s SIP calculator automatically calculates the target amount for any stipulated period.
Why Should You Invest In SIP?
A systematic Investment Plan, commonly referred to as SIPs, allows you to invest a small sum regularly into a mutual fund of your choice. By activating a SIP, a fixed amount is deducted from your bank account every month and gets invested in the mutual fund the same month.
While you may make lump-sum investments instantly, one doesn’t always have such a luxury with the traditional method of paying into mutual funds.
That’s because instead of your payouts coming at the end of a specific term, they are taken weekly or monthly throughout whichever one is longer. The result is that you can’t get access to your money if needed when there are large fluctuations in the market.
Knowing this, it’s worth investing in stocks using systematic investment plans (SIPs) instead of switching from one company to another when you need to make new purchases that sometimes bring in added risk and generally leave less time for those with active jobs to plan properly.
Some of the benefits of SIP are
1. Convenience
Investing in phases is possible because of a SIP. You can invest money in a more disciplined manner. It will also give you the convenience of startup your investment with as low as Rs 500 a month.
2. Power of Compounding
You will unleash the power of compounding your investments on a long-term basis.
3. 2x Higher returns than RD
ELSS mutual funds usually provide more returns than your bank’s FD, PPF, and other investment options.
How Is SBI SIP Return Calculated?
When estimating SIP returns, CAGR is the most effective method. CAGR stands for Compound Annual Growth Rate, and it allows you to make estimates about how your investments will grow year after year.
The rate at which an investment grows each year for the duration of your investment is considered CAGR and represents how long it will take for the value of your initial investment to double, i.e., at what point there will be two times more than you originally put in since money keeps on coming in every month or quarter from your SIP/investment plan.
Below is the formula for calculation of CAGR:
CAGR = {(Ending value / Beginning value) ^ ( 1 / Number of years or Number of months)} – 1*100
Where,
Ending value = NAV at the time of withdrawal,
Beginning value = NAV at the time of investment.
The number of years or Number of months = Tenure of the amount invested.
Example:
Ms. Sita has invested Rs 5 Lakh in her mutual fund when Fund NAV is INR 31. She has contributed INR 20,000 every month for 5 years. At the time of withdrawal after five years, Fund NAV has grown to INR 50. Based on the CAGR formula, we can calculate SIP returns for Ms. Diksha.
CAGR = [(Ending value / Beginning value) ^ (1 / number of years) – 1* 100]%
= [{(50/31) ^ (1/5)) – 1)} * 100] %
= 10.03%
This means the investment has grown 10.03% each year for 5 years.
The SIP return will give the same answer in terms of months.
CAGR = [{(((50/31) ^ (12/60)) – 1)} * 100]%
CAGR = 10.03%
Hence with an investment of INR 5,00,000, the money would grow to approximately INR 8,06,353 in 5 years. This is a scenario where the returns are above average compared to the other scenarios.
However, if we look at different scenarios such as INR 44 for NAV after 5 years and INR 40 again gives us an average return at around 12%. Anything below that would be considered low returns when they could have been expected with a different strategy.
The Best SBI Mutual Fund SIP Plans to Invest In
The SBI Mutual Fund is a great way to invest your money because they help ensure high performance and engage in value-based investing.
The following are some of our best investments, all of which have performed strongly across different market conditions and provide clarity of direction when it comes down to economic uncertainty.
1. SBI Small Cap Fund
An SBI Mutual Fund is one of the best equity schemes currently in circulation. It has consistently performed better than most other schemes, with almost 22% returns on average over 5 years.
Furthermore, it has consistently outperformed its category and its benchmark on an annual, monthly, weekly, and even daily basis. The fund invests roughly 60% of the money in small-cap stocks, while another 38% goes into mid-cap ones.
Nearly 70% of the total funds invested are into stocks with good liquidity, which facilitates easy buying/selling and ensures that you’re not dependent solely on perusing financial statements to make your investment decisions.
The SBI Small Cap Fund is best known for its high exposure to mid and small-cap stocks. This makes the management of this portfolio very volatile, so it is not ideal for risk-averse investors as it increases their risks.
However, you can minimize market-related risks by buying this fund in a systematic investment plan (SIP).
2. SBI ETF Nifty Bank Fund
If this is your first time investing in the stock market, you may be wary of being susceptible to overly risky investments. No one wants to lose money unnecessarily, after all.
A good rule of thumb is that if there’s one thing all investors should do, it familiarizes themselves with asset allocation before throwing their hard-earned cash into stocks.
Another piece of advice for first-time investors is to get acquainted with the concept of Exchange Traded Funds (ETFs).
Among them all, we have found the SBI ETF Nifty Bank fund to be an up-and-coming option! Not only does the fund have one month and three month annualized returns at around 20%, but it has also done substantially better than its peers.
Even further, being an Exchange Traded Fund (ETF) fund, the expense ratio is considerably low - a great advantage. Furthermore, the fund has invested 92% of its assets in large-cap stocks, which makes it quite sturdy in times of market turmoil.
3. SBI Magnum Multi-Cap Fund
SBI Magnum Multicap Fund, a multi-cap fund that invests in both large-, mid-, and small-cap stocks, has delivered 15.27% returns for the last 5 years with significant upside potential because it’s positioned to benefit from both the stability of large caps and the high potential for growth in small and large caps.
This balanced fund, managed by SBI Mutual Fund, has about 26% of its assets invested in mid-cap stocks, 62% in large caps, and 12% in small caps.
The fund can be an appropriate investment option for individuals and business owners who have more money to spare and are willing to invest in the stock exchange market.
4. SBI Dynamic Bond Fund
Debt funds are primarily meant to be invested by conservative investors who wish to earn stable returns while still preparing for losses. On the other hand, these funds are still better than fixed return investment options in terms of returns and volatility.
The SBI Dynamic Bond Fund is a debt fund that has invested approximately 60% of its assets in bonds with AAA and above ratings and another 40% in sovereign securities. As a result, this fund represents a low-risk option with an attractive return profile.
The SBI Dynamic Bond Fund has outperformed the benchmark, giving 11% returns over the last year and 9.5% returns in the 3-year and 5-year framework.
This fund can be suitable for an investor with a low-risk profile and moderate return expectations looking for stability through a large scope of equity-like you would find in a bond.
Frequently Asked Question
Q1. Which SIP is best in SBI?
Some of the best SIP Mutual in SBI are:
Fund Name | 1-year Return | 5 years Return |
SBI Magnum Multi-cap Fund | 10.84% | 24.88% |
SBI Magnum Tax Gain Fund | 7.46% | 19.97% |
SBI Short Term Debt Fund | 4.17% | 8.28% |
Q2. How can I open a SIP in SBI?
To open a SIP in SBI, follow the below steps:
Step 1: First, set your investment goals and choose a scheme based on your risk appetite according to your investment horizon.
Step 2: Make sure that your KYC is complete.
Step 3: The next step is to set the date and duration of the SIP.
Q3. Is SIP tax-free?
If you are investing through Systematic Investment Plans in equity funds or balanced mutual fund schemes, then your investment will be considered as Long Term Capital Gains and completely tax-free.
For example, an investor invested 10 lakhs and got its total value after 3 years. It means you make a 20% annualized return. If you redeem the money after 4 years, then the entire amount gain of 14 lakhs is long-term capital gains (LTCG) which are not taxed regardless of what amount you invest every month.
So yes, SIP investments offer tax-free growth as only short-term capital gains are taxable.
Q4. How can I withdraw money from SIP?
Unless your investment is subject to a lock-in period, you can remove your funds by redeeming fixed amounts (known as systematic withdrawals). You can do this on a set timetable or when withdrawal requests are made individually.
Q5. What is the lock-in period for SIP?
There’s generally no lock-in period for investing in a SIP (Systematic Investment Plan) through a mutual fund. However, an ELSS (Equity Linked Saving Scheme) investment comes with a minimum of three years based on the term chosen.