SBI Mutual Fund AMC is a leading fund house in India backed by the State Bank of India, India’s largest public sector bank. This asset management company is engaged in providing a range of mutual fund investment services across key categories of equity, debt and hybrid to millions of investors across the country. In recent times, one of the most popular routes to invest in a SBI mutual fund scheme is the systematic investment plan popularly known as SIP. SIP plans provide investors, even those with small savings, the opportunity to create a large cumulative savings corpus for the future by investing small amounts at regular intervals of time.
The Need for Systematic Plans
Many individuals set themselves investment targets into account the future value of money (inflation), present income and potential future income and so on. The various criteria required to arrive at the target investment amount may differ from one individual to another depending on their unique needs at present as well as the future.
Now, suppose you arrive at a figure of Rs. 2 crores (it’s bound to be a large amount) that you need to save by the time you retire at the age of 60 years. Seems like a large sum, but if you take into account that you might have around 30 years or 360 months to reach this target, you will have to save in the ball park of Rs 56,000 per month. However, this does not take into account any interest or capital gains income that you might receive on your savings. Now consider that you generate 15% annual returns on your monthly savings. In that case your monthly savings requirement to reach the Rs. 2 crores will decrease quite significantly to around Rs. 30,000 (for 360 months at ROI of 15% p.a.) – which is definitely a lot easier to achieve. But these calculations hold true if and only if, you manage to save in a disciplined manner and this is where Systematic Plans from SBI MF AMC can help you out.
An SBI SIP is not only for retirement planning, this investment route is also effective in helping you plan financially for the shorter term. Thus financial planning for key events such as marriage, children’s higher education, down payment on house and so on can also be achieved through SIPs. In the following sections we will discuss the key benefits and features of an SBI Mutual Fund SIP.
How SBI Mutual Fund AMC SIP Works
The concept of SIP is pretty similar to the bank recurring deposit for the most part. When you set up a SBI SIP, the monthly, weekly or daily investment capital specified by you gets debited from your registered bank account automatically on a specific date. This predetermined amount then gets invested in a SBI mutual fund scheme of your choice. It is important to note here that though your individual investment amount will remain unchanged, you do have to keep in mind that the NAV of the fund that you have chosen will vary daily; thus, the number of units purchased will tend to vary from one SIP installment to another.
Let’s take an example. Suppose you are investing Rs. 500 per month through an SIP. Suppose the first time you invest through the systematic plan, the NAV of your chosen SBI MF scheme is Rs. 50 and thus you purchase 100 units of the scheme. The next time your SIP payment occurs, supposed the scheme NAV has increased to Rs. 60, in that case, you are able to purchase only 8.33 units of the scheme. Alternately, if the NAV declines to Rs. 40, would be able to purchase 12.5 units in the same scheme. Thus the average price of each scheme unit will change whenever you make a new SIP investment in your chosen SBI MF scheme. This feature known as “rupee cost averaging” can be quite beneficial in the long term and in the following section, we will take a look at some of the key benefits of investing in an SBI SIP including this one.
Benefits of Investing in a SBI Mutual Fund Scheme through SIP
By choosing to invest in a SBI mutual fund scheme through the SIP route, you can rest assured that you will be investing in a high quality mutual fund scheme while receiving the key benefits of following a systematic approach to investing for the future and thereby generating wealth.
Disciplined Investments: One of the key factors that determine future wealth is financial discipline. Though it is seemingly easy to ensure that you save a predetermined amount at specific intervals such as every month, few actually manage to do this with consistency. Systematic plans can help you achieve this with ease as the entire system is automated and SIP transactions get completed without the need for human intervention beyond the initial set up. Thus investing in a SBI SIP helps inculcate financial discipline in the investor.
Rupee Cost Averaging: As discussed earlier, the price of individual units of the fund is equal to the average NAV as per the different dates on which the SBI SIP occurred due to the “rupee cost averaging” effect. Thus an individual investor no longer needs to worry about “timing the market” i.e. wait for an opportune moment to enter into the market. Timing the market is a difficult art to master and few, if any, have managed to perform this consistently over an extended period of time. The SBI SIP system completely eliminates the need for such activities, thus rupee cost averaging of SIP works in the favor of novice investors.
Flexible Investment Tenure: In case of most mutual fund schemes managed by SBI Mutual Fund AMC, the number of SIP installments can be as few as 6 months and there is no maximum tenure when availing a SBI SIP. Moreover, you can also change the tenure at a later date after the SIP has been started without a hitch (as long as it is not less than 6 months). This sort of benefit is not available in case of the bank recurring deposit which follows a similar approach.
Flexible Investment Amount: An SBI SIP can be started by an individual investor with an amount as small as Rs. 500 for each installment. Also, even after setting up an SIP, the investor can increase or decrease the individual SIP amount as per his/her savings capability as long as the individual installment is not less than Rs. 500. This degree of flexibility is one of the key reasons why SIP investments have increased significantly in recent years.
Long term Benefit of Compounding: Though not a fixed rate instrument, mutual fund investments are subject to the general rule – the earlier you invest, the more your wealth grows over time. For this reason, the SIP calculator – a vital tool used to calculate future value of your fund investment – uses the compounding system to provide you with approximate returns. Thus even small amounts invested in mutual fund schemes through an SBI SIP can provide you significantly high returns due to the power of compounding.
Leading SBI Mutual Fund Schemes for SIP Investments
SBI Mutual Fund AMC offers scores of open-ended mutual funds across diverse categories of equity, debt and hybrid. In the following section we will discuss of the leading schemes from SBI MF AMC that have historically performed strongly in various market conditions and are potentially ideal for investment through Systematic Investment Plans.
SBI Small & Midcap Fund
This is one of the best performing equity schemes currently managed by SBI Mutual Fund AMC and the stated objective of the fund is to generate long term capital gains for the investors. In order to achieve its stated objective, the mutual fund would mainly invest in a variety of equity and equity-linked instruments of various mid as well as small capitalization companies in India. Some investors shy away from mid and small – cap oriented funds due to their high potential for volatility in changing market conditions, however for a number of risk tolerant investors, the increased risk is well worth it considering the high potential for returns from the investment.
SBI ETF Nifty Next 50 Fund
This is a multi-cap equity fund managed by SBI Mutual Fund AMC and it closely mirrors the performance of the Nifty Next 50 benchmark. This index fund manages to closely mirror the benchmark’s performance by ensuring that its portfolio composition closely matches the weight assigned to each company listed on the Nifty Next 50 Index. Investing this index fund through an SIP can help you make considerable gains in the long term especially during market bull runs. The recent rally in Indian markets have led the country’s indices to unmatched highs and in such a situation, an index fund such as SBI ETF Nifty Next 50 Fund can help you benefit greatly from the trend.
SBI Magnum Multi-Cap Fund
Multi-cap funds follow a strategy of investing in companies across multiple sectors without high exposure to equities of any particular market capitalization. Thus on the one hand, the exposure to mid and small-cap equity investments would help increase capital appreciation for the investor, while on the other hand, large cap investments in the portfolio would help the mutual fund preserve investor wealth during market downturn and also reduce the overall scheme volatility. Multi-cap funds such as SBI Magnum Multi-Cap Fund are most popular among investors seeking a balance between potentially high growth and the related investment risk.
SBI Contra Fund
This is a unique multi-cap equity scheme from SBI MF AMC, which takes a contrarian approach to choosing investments. The fund is focused on identifying undervalued equity shares that have huge growth potential for investors seeking long term capital appreciation of their investment. Many of the historically successful contrarian stances taken by this fund have occurred with respect to companies in key cyclical sectors that were in the downturn phase of their cycle with potential for high growth at a later date. In the recent bull market, this fund has seemingly underperformed due to its higher large cap exposure however this scheme is considered to be a top pick for investors seeking consistent growth of their investment over the long term.
SBI Magnum Taxgain Fund
This ELSS from SBI MF AMC has been one of the favourites for investors seeking a fund capable of providing tax exemption benefits under Section 80C along with corresponding capital appreciation of their investment. The ELSS tax saver funds feature a lock-in period of 3 years, which is shorter than any other tax saving scheme currently available in India. Moreover, investors in the SBI Magnum Taxgain Fund can also look forward to receiving the benefit of an EEE investment wherein, the principal invested, the interest earned and the maturity amount are all tax free.
SBI Magnum Children’s Benefit Plan
This is a debt-oriented hybrid fund which means that though the fund is allowed to invest in both debt and equity instruments, this scheme is particularly focused on making debt and money market investments. This mutual fund category represents a lower level of risk than equity-oriented hybrid funds and an even lesser degree of risk as compared to equity schemes. The stated objective of the SBI Magnum Children’s Benefit Plan is to generate attractive levels of capital returns for the investor through an actively managed investment portfolio comprising money market, debt and equity investments.
Table 1. Table showing comparison of the above SBI SIP Funds across key criteria
For purposes of the following illustration, the individual SIP amount has been fixed at Rs. 2000/month or Rs. 24,000 annually and the date of start of the SIP for all the funds has been fixed on August 1, 2016, end date of the SIP in all cases is July 1, 2017. The SIP value is based on historical data of the regular plan of each fund and does not guarantee future performance in any way.*
|Fund Name||1 Year Returns||3 Year Returns||5 Year Returns||Total SIP Investment (Principal)||SIP Maturity Value|
|SBI Small and Midcap Fund||30.35%||30.33%||32.61%||Rs.24,000||Rs. 28,262|
|SBI ETF Nifty Next 50 Fund||30.80%||N/A||N/A||Rs.24,000||Rs. 28,520|
|SBI Magnum Multi-Cap Fund||17.98%||20.50%||21.74%||Rs.24,000||Rs. 27,345|
|SBI Contra Fund||15.52%||14.45%||16.19%||Rs.24,000||Rs. 27,025|
|SBI Magnum Taxgain Fund||15.17%||14.10%||18.00%||Rs.24,000||Rs. 26,946|
|SBI Magnum Children’s Benefit Plan||14.94%||16.13%||N/A||Rs.24,000||Rs. 26,471|
*The above data is for illustrative purposes only and does not correspond to a real-life situation.