What happens when an SIP is stopped in a mutual fund scheme?
There are two ways in which you can start investing in mutual fund schemes – Lump Sum or SIP.
Lump Sum investing is when you buy units in mutual fund schemes by making a one-time payment. SIP, on the other hand, is an investing technique in which you make regular small payments to purchase units in mutual fund schemes to build a long-term corpus.
Among the two investing styles, SIPs are the most preferred form of investing in mutual fund schemes due to two main reasons –
- You can start an SIP in mutual fund schemes with as little as ₹500 a month which makes it an affordable form of investing.
- Investing through SIP in mutual fund schemes for a long term can beat market volatility through rupee-cost averaging. This helps in keeping the cost of your investments in line with the market movements.
Although SIPs are a very popular style of investing in mutual funds, there is still a lot of misconception around it due to which many individuals fear investing in mutual fund schemes.
Among the several misconceptions, one is “What happens when an SIP is stopped in a mutual fund scheme?” This article offers complete information on SIP investing to clear your confusion on this misconception.
How to start a SIP in mutual fund schemes?
Once an individual does all necessary research of different mutual fund schemes and selects the best mutual funds to start investing through SIP, they can follow these steps:
Open a Mutual fund investment account by submitting their KYC documents and other required details.
Choose the mutual fund scheme that you want to invest in and select the investing style as SIP.
The first investment can be initiated through Internet Banking, UPI or a mandate. For all future regular investments, a mandate will be used for auto-debit from your bank account. Through this mandate, the SIP amount will be deducted on a regular basis directly from your bank account and will be invested in the best mutual funds you selected for investments.
What is the role of mandate in banking?
Mandate is an instruction given by you to your bank to pay a specified amount to a company on a specified date directly from your bank account.
A mandate can be used in paying your bills like electricity bills, gas bills, etc. It is also used by financial institutes for setting auto-pay of EMIs on loans you borrow. Similarly, mandates allow regular investments through SIPs in mutual fund schemes.
What happens if you do not have the necessary funds in your bank account on the payment day under a mandate? Is there any penalty or charge for it?
As mandates are simply instructions given by you to your bank to pay a specific amount towards bills, loan EMIs or SIPs directly from your bank account, in case, your bank account does not have the required balance for payments the transaction will not get processed.
There is no penalty or any other charges the bank asks you to pay for not being able to make a payment as per the mandate.
In case of bills and loan EMIs, the penalty and other charges are charged by the companies as per their policies. However, there is no penalty or any charges in case you are unable to invest in SIPs in any mutual fund schemes in India.
Can a SIP be stopped and restarted in future?
Do not think of SIP as a bill or a loan EMI. It is a tool for savings and investments and not a liability. As you would save money by keeping at home, you can save and invest in mutual fund schemes.
There are times when you have additional expenses and can not save money. Same way, there can be times when you cannot make an SIP. The SIP is stopped when you do not make a fund transfer and can be restarted whenever you make the transfer of funds. There is no penalty or charges on restarting and stopping an SIP.
Can you stop and redeem your investment in mutual fund schemes anytime?
Yes, you can stop and redeem your investment in mutual fund schemes at any point of time even if it’s invested through SIP by placing a request for redeem on your mutual fund investment account. However, few mutual fund schemes like ELSS, Child Plan, Retirement Plan, etc have a defined lock-in which you should be aware of while considering the liquidity of different mutual fund schemes.
Conclusion:
Investing in mutual fund schemes through SIP is the best way of building wealth in the long-term. You get the flexibility of buying, switching and redemption of mutual funds schemes at any point of time. You can talk to an AMFI Registered Mutual Fund Advisor today to guide you in selecting the best mutual funds as per your goals.
