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    Home»SIP»Tips to Avoid Penalties and Decide When to Pause or Stop a SIP
    SIP

    Tips to Avoid Penalties and Decide When to Pause or Stop a SIP

    July 16, 2024


    Systematic Investment Plans, or SIPs, have fast emerged as the gateway for retail investors to participate in equity markets by infusing small periodic sums. As per industry data, monthly flows into SIPs have recently touched all-time highs, crossing ₹13,000 crore mark.

    However, unforeseen situations occasionally necessitate investors to halt SIP contributions for short periods or even close SIPs permanently. Altering SIP status without following appropriate procedures attracts stiff penalties ranging from ₹100 fee for a single default to installation cancellation with a 3% levy for recurrent defaults.

    To save investors from such punitive charges while providing flexibility to modify SIPs if circumstances demand, leading financial advisors have outlined smart tips on when and how to pause or stop SIPs. Key pointers include carefully evaluating situations for a brief SIP pause instead of permanent closure, properly intimating fund houses, and avoiding ad-hoc discontinuation of installments.

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    Rules For Discontinuing SIP Registration

    Typically, investors can halt SIP installments temporarily by ‘pausing’ the registration through written or online requests. Most fund houses allow SIPs to remain paused for up to 3 months, after which installments automatically resume.

    However, the SIP registration is cancelled if the paused period exceeds 90 days. Investors can even close the SIP permanently by submitting a cancellation form. However, this closure should happen at least 15-30 days before the next installment date. Using a sip calculator is also a better option to consider.

    Penalties Levied For Irregular SIP Payments

    Penalty charges are triggered if the SIP discontinuation process is not followed appropriately or payments fail despite active registration. For instance, SIPs bounced twice consecutively attract ₹100 as a failure fee.

    If installments remain unpaid for three straight months, the SIP is cancelled, and ₹300 or 3% of the SIP amount is levied as a penalty. Even cancellation without sufficient notice invites fines. Hence, suitable intimation is vital.

    Industry veterans advise that investors should evaluate pausing SIPs instead of abrupt closure if the pause duration required is less than 90 days. Reasons like temporary cash crunch, availing of a loan where EMI equates monthly investments, short-term medical exigencies, overseas travel, etc., necessitate brief SIP halts.

    Permanent SIP closure should happen only in events having prolonged financial impact, like job loss, critical illnesses, retirement from service, children’s higher education, or marriage.

    How To Pause/Stop SIP Hassle-Free

    Instead of ad hoc communication, investors should raise SIP change requests by filling out designated forms only. For pause, the specified period and resumption date must be clearly mentioned. The SIP closure form requires mentioning scheme/folio details, the remaining installments, etc.

    Investors can even log in to online accounts on fund houses’ websites and seamlessly request SIP discontinuation. Email requests should only be sent from a registered email ID. Following the right procedures reduces penalty risks.

    Using online mutual fund investment platforms can further ease out the process of temporarily or permanently changing SIP status without paperwork.

    Additionally, having a demat account can simplify managing your investments, including SIPs, as it consolidates all your holdings in one place, making it easier to track and make changes as needed.

    SIPs Aid Financial Planning Through Volatility

    Pausing SIPs temporarily or stopping installments if the situation demands is not equivalent to withdrawing from equity investing. SIPs enable disciplined investments even during market ups and downs, which aids financial planning. Once past the disruption, SIPs can be restarted to realise one’s long-term goals, leveraging the power of compounding. Hence, investors should make prudent calls to modify SIP status rather than quit investments hastily.

    Investors can easily pause or cancel their SIPs by following a structured process and giving requisite notices to avoid monetary penalties. Periodic review of life situations is advisable to make prudent decisions on continuing, pausing or stopping SIPs. With some wisdom and planning, one can save on charges while modifying SIPs to suit evolving investment needs and financial capacity. Staying invested for the long term remains the key.

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