What if I might have to stop my SIP?
SIP is a tool which helps investors actualize their big goals through small steps. You can achieve a big dream like meeting your daughter's wedding expenses, with an SIP of as small as Rs 2,000 a month. Power of Compounding and Rupee Cost Averaging are the key highlights of an SIP, which adds a few more stars on its shoulder and makes SIP the most favoured way of investing.
Despite the goodness and the unique features, many people still do not prefer investing through an SIP. They are skeptical, “What if I can't afford to continue my SIP after some time or if for some reason I miss my SIP installment”. For this uncertainty, many investors stay away from SIP.
If you too have similar thoughts, then this article is intended to clear your doubts and help you overcome the fear.
What will happen when you do not have enough money in your account on the date of the installment, and you miss the installment?
Many investors think that on missing an installment, their SIP will be cancelled. However, that is not the case. If you have missed it, your investment amount will be less than one SIP amount, that's about it. The Mutual Fund house will not cancel your SIP, nor will it impose any penalty for not paying an installment. For the simple fact, it is your investment, it is not your loan EMI, so you don't owe anyone when you invest. But your bank may levy a penalty for ECS default, and the amount of the penalty is different from bank to bank.
Here you must note, that if in case you miss three consecutive SIP's, then the mutual fund will stop sending any further ECS mandates to your bank, and will stop your SIP.
Wondering what will happen to the SIP installments you paid for, before the SIP stops?
Your investment will remain intact. The amount collected through SIP's will remain invested in the MF.
So, if you have an SIP of Rs 2,000 a month and you have paid 15 installments and then missed three SIPs in a row. This means your total investment in the MF is Rs 30,000. Nothing will be deducted from your account, this 30,000 will remain invested in the Mutual Fund and will keep growing with the fund, until you opt to withdraw your investment.
You can avoid the bank charges on missed SIP installments as well. If you can foresee that you might not be able to pay for your SIP for some time because of a financial crunch, then you can opt for the Pause SIP facility, which is offered by some Mutual Fund Schemes. In this facility, you can pause the SIP for a specific period like 6 months, and after 6 months, the SIP will automatically start. If you feel, you need a longer break, then you may stop the SIP and restart as per your convenience.
So, it's pretty easy to stop and resume SIP's anytime. At times, it may happen that you forget your SIP date and you fall short of the minimum balance to be maintained for your SIP, so it won't be a big deal and you can resume as usual from the next month onwards. But then, if you miss SIP installments, you must remember that each miss is dragging you one step away from your goal. Moreover, missing too many SIP's will also hamper averaging of costs.
To avoid missing SIP's due to insufficient bank balance, it's best you register your phone number and e-mail id with the fund, so you'll get an alert from the MF a few days before the SIP date. You'll get another message updating you with the status of the SIP transaction as to whether it was successful or not.
If you do miss one or some of your installments, then ideally you should make up for it by investing the amount of the missed SIP's in the same scheme in the near future. This will ensure that you are never falling behind in the pursuit of achieving your goals.
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