All about Systematic Investment Plan and the SBI - SIP Mutual Fund

This article is written for those who do not understand what Systematic Investment Plan (SIP) is. I have explained SIP in simple language, which will help new entrants into the investment market. Clear all your doubts and learn how to invest in the best SIP through this article.

I decided to keep this article as simple as possible. I understand people have doubts and a lot of questions when they think of making a financial investment. This article covers all questions that an investor may have. To keep it easy to follow I have answered the most common questions on SIP that a new entrant may have. Read on to understand why, how and where to invest in SIP.

What is Systematic Investment Plan (SIP)?

SIP or Systematic Investment Plan is a way of indirectly investing in mutual funds. Your SIP is managed by a financial advisor or a fund manager who will invest your money in the best
mutual funds and you can make a tidy profit once you decide to sell the units at a higher NAV than you bought them.

SIP is an investment plan offered by various financial institutions. Some of the popular names are HDFC, ICICI, SBI and IDBI to name a few. SIP is not the same or similar to mutual funds, Public Provident Fund (PPF) or National Savings Certificate (NSC) so do not mistake it for a financial instrument, because it is not one. It is only a means of investment in mutual funds.

How Much Should You Invest

How much you invest in SIP is entirely your decision and this is probably the best thing about this mode of investment. If you have the funds you can make a onetime investment and lock it for 3 to 5 years or you can opt for paying monthly or annually instalments.
You pay a predetermined monthly or annual sum for a fixed tenure. The SIP manager or financial advisor in turn invests the money in various Mutual Funds.

When should you invest in SIP

Should you invest in SIP whenever you have funds or feel like investing? I would say, No! The right time for you to invest in SIP is when the market is unstable. That's right, make an investment in an SIP when you find the market is bearish or going downwards. I suggest this because your SIP manager will be able to purchase more mutual funds for you with the investment you make because of the bearish market trend. When the market turns bullish again your investment would make a neat profit.

How does SIP work?

SIP is not rocket science; in fact it is very easy for you to understand. Suppose you decide to invest Rs.5000 each month. In five months you would have invested Rs.25000 in SIP. Each month you will be allocated units bought at the prevailing Net Asset Value (NAV). Let me show you how through the chart given below –
Table showing SIP units and NAV for 5 months

From the above table you can understand that when you bought the SIP units in the first month at the launch you paid NAV of Rs.10 and got 500 units in your name. The next month the NAV shot to 14 and you could get lesser number of units. At the end of 5 months the average cost per unit is 9.89 which is less than the original price of 10. If you chose to sell the SIP now you will run in a loss. You will need to wait to sell it when the NAV is higher as a higher NAV amounts to profit for you. Here is a tip; buy SIP units when NAV is low and sell them when NAV is high.

Advantages of SIP Explained

I discuss here the most common advantages associated with SIP which every investor should be aware of –

Offers Low Investment Option

It sometimes becomes difficult for a salaried person to make an investment of a lump sum amount. Finances can be a problem but you do not have to worry about that when you are investing in SIP. You can make investment in multiples of Rs.1000 (or less depending on the manager you select) for the stipulated period. This gives you the freedom to invest easily throughout the year.

Market Decides The Unit Price

The biggest advantage of investing in SIP is you benefit when the market is unstable. Everyone knows that the market is never constant. Bullish and bearish trends are an accepted part of the stock market. When the market is doing well the NAV is high and you get fewer units in your account that month, but when the stock market is volatile you get to make up the loss by being able to get more units in your name. So it all averages out and you really do not lose anything.

SIP Makes You A Responsible Investor

When you invest in SIP you learn to start saving every month. This is a good way of learning to save for your future.

Disadvantages of SIP

I am not selling a product to you, so it is only right that I explain the disadvantages of SIP as well.

Not Good for Bullish Market

Your SIP investment will not give you profit if the market is bullish. The NAV depends on the stock market. If it is moving upwards you will be paying more for each unit as a result you will get fewer units in your name in that month. However, if you have crossed the lock in period you can sell your units at this time and earn a profit.

Separate Lock in for Each Investment

If you are investing in SIP as a tax saving fund every investment you make has a separate lock in period of three years. What you invest today will remain locked in for three years, starting today. What you invest in the next month will stay locked in for another 3 years starting from that date. Which means your lock in period will differ and you will not be able to sell all the units at one go unless the lock in period for all is over. You may sell part units as they complete the lock in period.

SBI Mutual Fund Systematic Investment Plan

You must wonder which the best SIP is for you. If you are thinking of investing in it then you must go in for a product with the least risk. I would suggest the State Bank of India's Systematic Investment Plan, launched by SBI Mutual Fund. This is as safe as safe can be. SBI is a name to reckon with and the mutual funds launched by it are doing well.

The SIP announced by SBI is a good vehicle for you to investment in for it provides you convenience because of the ease of payment the scheme offers. The monthly investment scheme in the SIP is similar to Recurring Deposits offered by most banks where you deposit a fixed sum every month. Banks give you interest on the deposits while in an SIP the money is used for buying mutual funds.

SBI has come out with many SIP schemes that have recorded high NAV. I have created a list of the best SIP plans by SBI based on their performance in the market and the scope they have to yield good returns. These did not struggle even when the world faced its recent financial crisis. These shows the fund managers have the experience and skill to take notable financial decisions.

I observed these plans in the last few months and noticed they have steadily been giving good result. Some of the better SIPs by SBI are mentioned below for your benefit. You can invest in any of these SIPSs as they are doing well in the market.
SBI Magnum Sector Funds Umbrella - Contra Fund
  • SBI Magnum Sector Funds Umbrella - Emerging Fund
  • SBI Blue Chip Fund
  • SBI Magnum Tax gain Scheme
  • SBI Magnum Midcap Fund
  • SBI Chotta SIP Fund

  • Some of the above SIPs are designed for the economically lower strata. The investment amount per month is as low as Rs. 100 for SBI Chotta SIP Fund. This gives everyone the freedom to invest their money.

    How to Apply For SIP

    You can either go through an agent or complete the formalities yourself. SBI mutual fund has branches throughout the country where you can pick the application form.
  • Fill the form and submit it at the designated office
  • Submit a self attested copy of your PAN card
  • Submit a copy of your address proof
  • Submit 2 passport size photographs
  • Select auto debit option so the bank debits the funds directly from your account if you want. This actually save you the trouble of having to remember to make the payment on time
  • Fill an authorization slip permitting the bank to debit funds

  • Allotment of Units

  • Your application is processed by the office and you receive a statement specifying the units allotted to you and the price at which they were bought
  • You receive a monthly statement after every payment, with the number of units allotted and the price per unit indicated
  • The price of units will fluctuate each month depending on the NAV when the units were bought

  • I hope this compilation on facts on SIP come useful to you. I would be willing to clear any doubts you may have regarding the subject. Just leave in a message and I will get back to you.

    I have also complied a list of the best mutual funds for your investment portfolio which you can have a look at. Remember to invest wisely!

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    Guest Author: kaushal kishore17 Jan 2013

    Hi, I am a salaried employee and want to invest(2000 per month) in SBI SIP.. My Monthly salary is around 32K. Please suggest me which SIP will be better for me if I plan duration is of 3 or 5 years ..

    Guest Author: Jackey14 Apr 2013

    Can we go directly to SBI Bank for SIP? I have a branch in Jammu.

    Guest Author: Narender Singh15 Apr 2013

    I find your article very useful to me. I am a force personnel. I can invest 2000 per month, for a period from 3 to 5 years. What is the best short term plan for me? I am assuming a guaranteed beneficial plan. Kindly advise.

    Guest Author: Mahitha21 May 2013

    I liked your article very much. It proved to be very useful as Im an early investor. But I have a few doubts:
    1. Do we need a DEMAT a/c for SIP?
    2. How to sell the SIP after the period is over? through a broker?
    3. After the period is over, is it compulsory to sell it?
    4. Can we extend the period in between?

    Waiting for your early reply.

    Guest Author: Finfort16 Jun 2013

    Once the lock in period is over, what is the procedure of selling the SIP and how long can we wait for the NAV to go up after lock in is over?

    Guest Author: mahtab alam26 Jul 2013

    I am investing Rs. 1000 per month in IDBI SIP Plan from May 2013. What benefits I will get after 5 yrs?

    Guest Author: arbind narayan singh01 Jun 2014

    I invested in SBI SIP in 2010 and after two years I stoped payment and now want to withdraw can I get it and how can I apply.

    Guest Author: Rohidas Shinde07 Jun 2014

    I am interested to invest Rs.2000 per month, which is the best SIP for 3 to 5 years?

    Guest Author: Arvind Kumar04 Aug 2014

    I am interested to invest Rs.2000 to 3000 per month, which is the best SIP for 3 to 5 years?

    Author: Pravat Kumar Das09 Sep 2014 Member Level: Gold   Points : 6

    Systematic investment plan is the best option for all kind of people.
    Whether a salary holder, a house wives, or a business class person.

    Always remember-
    Systematic investment plan should be used for more than 15-20 year ( although you have option to withdraw your amount after six month with out any fees).

    You should start from the young age ( when ever you start earning a regular income can start SIP it does not matter your age.
    If a young of age 25 have a regular income can start SIP.

    The more time you stay invested in SIP means the bigger corpus you make in long time period because of compounding and average benefits.

    SIP does not mean only investment in mutual fund, it can be done through Recurring deposits at bank who want low risk, and high risk investors can choose different funds for there savings purpose like equity linked mutual funds, index mutual funds etc for taking little risk and getting opportunity for bigger return.

    Guest Author: Raj Pawale19 Sep 2014

    I want to invest in SIP this time. please tell me whether I should invest or not.

    Guest Author: deepti09 Nov 2014

    I want to invest 1000 pm for the duration of 15 20 years
    I want to know minimum what return would I get and what is the risk factor of it

    Guest Author: chandu29 Nov 2014

    I am interested to invest Rs.2000 to 3000 per month, for long term period say, 18 years which is the best SIP ?

    Guest Author: Bitupon Mohonta23 Jan 2015

    If I invest Rs. 5000 per month for 10 years in SBI SIP, how much return will I get after 10 years?

    Guest Author: ABHIJIT ROY28 Jan 2015

    First of all...big thanks for this wonderful article.
    I am few question.
    1. Is it a right time ( Jan-2015 ) to invest in SIP.
    2. I want to invest 5000 PM on SBI SIP, What are the best option/funds for this for period of 3-5 years ( at least .)
    3. Is it good to invest 5000 PM on single fund or invest in different funds by segegating my investment like 2K+2K+1K PM

    Guest Author: S.P.Waters28 Jan 2015

    I have invested in sip at sbi, but I could not understand
    What is "Equity" and "Debt". Could you be more specific.
    And supposing I invest Rs.500/- in each i.e. equity and debt, how much will I get in 3yrs.

    Guest Author: Charu Mehndiratta Sr07 Feb 2015

    I am a salaried person drawing 18000 p.a but sir please guide me if I invest 1000-2000 pm in Sip. What best return I can get if I block this amnt for 3yrs.

    Author: ramprakash10 Mar 2015 Member Level: Bronze   Points : 2

    Hi Juana,

    First of all I must compliment you for your brief and comprehensible information about SIP.

    But I have a doubt regarding this sentence ('At the end of 5 months the average cost per unit is 9.89 which is less than the original price of 10') mentioned in your blog. Here you are saying like 9.89 is less than original price of 10, I am about to ask like is that anything to do with initial original price to predict profit or loss? when it comes to selling the units (may be after the lock-in period), it's all depends on the NAV of units on that month only, is'nt it?
    I might be wrong. Please clarify me. Moreover, I have few other questions to ask.
    1. Is there any entry and exit load to pay when it comes to buying or selling the units?
    2. Is there any tax will levy on the returns(profits) on selling the units?
    3. Is there any maintenance and handling charges for mutual fund companies? If that is the case, would it be pay for monthly or yearly?
    4. How long can we hold the units after it turns out of maturity period? If we can hold after the lock-in period, will that be any charge levy on units?

    Guest Author: GYANWANT JHA13 Mar 2015

    I invested in SBI SIP in 2011 and and now I want to withdraw can I get it and how can I apply.

    Guest Author: Manish Rai14 Jul 2015

    I am interested to invest Rs. 2000 to 3000 per month, for long term period of approx 10 years. Which is the best SIP?

    Guest Author: Stuti Saxena07 Sep 2015

    If I invest RS.1000 per month for 15 years, what return I will get after 15 years?

    Guest Author: Kantilal M Patel18 Sep 2015

    I am Retired person. I would like to invest Rs. 5000/- per month for 3 years. Kindly guide me which is best SIP for me? Should I split amount in Two or Three parts? How can I get best return? Can I withdraw my invest in-between if I feel any crises? How Long can I hold units after completion of tenure?

    Your useful guidance will be appreciated .

    Guest Author: Debopriyo Bhattachar25 Oct 2015

    Hello Ma'am, your article educated me many things about sip. 1.Regarding starting of investment, how to know when the market is bearish (in lower stage)? I can't keep regular track of market value.
    2.During investment, how to choose which mutual funds to buy?
    3.Will I get the monthly update of my NAV from the manager(bank)?
    4.How will I get to know that at a certain time the value of my funds is on the higher side, so that I can sell those?

    Guest Author: Vijay Chaudhary19 Nov 2015

    I am Vijay Chaudhary. I am interested in investing Rs 2000/- per month for 3 years. What do you suggest?

    Guest Author: kapil jain20 Nov 2015

    I want to invest Rs.1000 p.m. Can you tell me the best plan of sip? I want invest for 15 yrs.

    Guest Author: HEMANT KUMAR15 Jan 2016

    If I invest RS.3500 per month for 15 years, what return I will get after 15 years?

    Guest Author: Mohammed Juned sheik16 Jan 2016

    I am a salaried employee and want to invest (about Rs. 1000 per month) in SBI SIP. My Monthly salary is around 36K. Please suggest me which SIP will be better for me if I plan the duration of 3 or 5 years.

    Guest Author: arjun mishra08 Apr 2016

    I am interested to invest Rs.2000 to 3000 per month for a long term period, say 18 years. Which is the best SIP ?

    Guest Author: Ashish04 Oct 2016

    Certainly, this article comes up with lot of clarifying facts. I was in dilemma over this term SIP over ELSS. I'd like to know if the returns are taxable. How can we go for tax free returns? Please suggest how much I could expect if I invest Rs. 5000 pm for 3 yrs?

    Author: Suresh Kumar R07 Oct 2016 Member Level: Gold   Points : 2

    Returns from Equity Mutual funds are tax free if you hold it for 1 year. Since ELSS have a lock in period of 3 years, returns are tax free only. Please keep in mind that lock in period is applicable for each month of SIP. For example 2nd month SIP amount can be redeemed after 3 three years from 2nd month and not from 1st month or SIP starting date

    Returns are purely based on market conditions and no one can guarantee for it.

    Author: Umesh06 Feb 2017 Member Level: Platinum   Points : 2

    Congrats for writing such a comprehensible and detailed article on SIP.
    It is very correct that SIP is a simplistic approach to mutual fund market for an investor. On the other hand a shrewd investor who is well experienced with the market movements can himself invest at the selective times when market goes down temporarily for next gain. Though that is not the every one's cup of tea still people are managing it.
    SIP is very good for those people who are busy in their work or business and can not spare time for studying the market and just leave every thing on SIP.
    Any way a very interesting reading for me as I have interest in this field.
    Please keep on posting such nice articles.

    Author: Partha K.23 Feb 2017 Member Level: Diamond   Points : 5

    The author has written a brilliant article on systematic Investment Plan (SIP). SIP is like a recurring deposit, but the money is deposited at regular interval in a mutual fund scheme. Many people don't have clear idea about SIP. SIP is useful because nobody can predict the equity market as well as the debt market. SIP is an effective tool when the market goes downwards (i.e., when the equity market is in bear grip). The SIP does not work well when the market moves upwards (bull market).
    The author has mentioned five equity-based schemes from SBI Mutual fund (AMC). I haven't understood the rationale behind it. All fund houses allow SIP. Moreover, the author has mentioned an ELSS for SIP. Although SIP is allowed in ELSS, experts discourage investment in ELSS through SIP. This is simply because ELSS investment is blocked for at least three years. If the SIP in ELSS goes for a considerable period, the investor can't take out the money at one go during market downturn.
    Leaving aside these small details, this is an excellent article to understand the working of SIP. I congratulate the author for this useful and informative article.

    Guest Author: varun13 Mar 2017

    I am interested to invest Rs. 2000 per month. Which would be the best SIP for 3 to 5 years?

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