What happens to your mutual fund investment if you miss SIP?

Mutual Fund Investment: Systematic Investment Planning (SIP) is one of the most preferred investment methods to invest in securities. It is easy and helps investors to invest in the stock market in a timely manner under the supervision of experts, thus minimising the risk of losses.

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In general, fund houses offer two ways for investors to buy units. One is auto debit where a fixed amount is debited from investors’ bank accounts on a given date. Here, the fund house presents the SIP debit mandate to the investor’s bank and the funds are transferred from the investor’s bank account to the mutual fund house’s bank account. The second is where an investor has to approve the transaction manually to allow the fund house to purchase units on his/her behalf.

But have you ever wondered what happens if such a debit mandate fails due to insufficient funds in the investors’ bank account?

Nitin Rao, Head Products and Proposition, Epsilon Money Mart, said that the first thing is that the fund house will not allot units to the investor due to a lack of funds for the purchase. Secondly, if three consecutive SIP debits are not honored due to a lack of sufficient funds, then the SIP stands cancelled. He added that investors who wish to stop/pause SIP should do it manually by revoking the mandate registered through the bank to avoid a penalty in case of a bounce.

What is Mutual Fund SIP?

SIP is regular investment into a mutual fund in a decided period of time. To do so automatically, the investor gives an ECS/NACH mandate or adds a biller. So that money can be automatically debited from your account and invested in mutual funds.

What can lead to SIP bounce?

A missed SIP installment happens when there isn’t sufficient balance in the account. Other reasons could be loss of income, poor performance of schemes and changed financial goals.

Nitin Rao said fund houses, in general, do not impose or charge any penalty in case the SIP ECS, authorization for automatic payment to an AMC, bounces due to insufficient funds in the investor’s bank account. However, most of the banks levy a ‘bank charge’ due to the SIP ECS dishonor. Banks typically charge a penalty each time the SIP AutoPay mandate fails due to insufficient bank balance.

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What happens to the amount already invested?

Nitin Rao said that closing or cancelling SIP will not affect the value of the investment. An investor can redeem his/her investment subject to the terms and conditions of the scheme/fund house. He/she can even leave the investment amount untouched and the value of the investment will increase/decrease as per the performance of the scheme. In other words, the existing units will continue to grow or fall as per the scheme’s performance.

“Investors can also pause SIP dates if needed rather than cancelling,” he said.

How to prevent missing your mutual fund SIP?

1. Keep sufficient balance in the account before the SIP due date

2. Investors can hit a pause on their SIP if they think they won’t be able to meet the deadline and can restart as and when they want to.

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