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Stopping or Pausing a SIP: Reasons, Steps, and Consequences Explained

By Pramod Kumar | 16-Dec-2023

Stopping or Pausing a SIP: Reasons, Steps, and Consequences Explained

Stopping or Pausing a SIP: Reasons, Steps, and Consequences Explained

Stopping or Pausing SIPs: What You Need to Know

If you know the investment world and follow financial news, you might learn an investment technique called SIP. SIP stands for a systematic investment plan. As the name suggests, SIPs help you invest in any mutual fund scheme to make a profit out of your hard-earned money.

Under a SIP, a fixed amount of money is regularly deducted from your bank account on a specified date and invested into the fund you have opted to invest in. This feature also improves your credit score, reflecting a disciplined investment pattern. SIPs have enabled many people to get the guts of investment, making the sum easy to invest.

Stopping a SIP: Reasons and Steps

A SIP is a long-term commitment that an investor makes towards a fund to make wealth or achieve a financial goal, but there might only be some seasons pleasant throughout the investment period. There are various reasons one has to miss or stop a SIP instalment.

Some common reasons include market fluctuation, continuous underperformance of the particular fund in which the investment has been being done, change in investment pattern, fund manager, or even the investor's financial goals. There might be a financial emergency, and the investor has to stop or suspend the SIP to respond immediately.

What Type of Breaks are you Applying to your SIP?

Let's discuss the process and requirements of stopping or suspending a SIP:

Stopping it Permanently

You can either stop a SIP permanently and liquidate the fund if the fund you were investing in no longer seems profitable or if you have found another fund closer to your financial goals.

You must inform your bank through which the SIP is running and the mutual fund service provider firm. Consider doing it in advance to avoid clashes, as banks take time to collect instructions from the AMC and process the same.

Pausing it for a Duration

The other way is to pause your investment if you are short on funds. Consider breaking the SIP for a few months if your account balance cannot cover your regular spending and contribution.

Although there are conditions for pausing a SIP, you can avail of this feature for a fixed amount of time only that the AMC has given you. The duration may vary from two to six months based on the company and fund you invest in.

Steps to Stop or Pause SIP

  1. Log in to the mutual fund website and look for the credentials like your folio number, associated bank account, PAN, etc.
  2. Select the SIP that you are into.
  3. Click on 'cancel SIP' to stop it permanently.

Steps to Pause a SIP Online

  1. Log in to the AMC website.
  2. Go to the SIP that you wish to pause by visiting the SIP transactions.
  3. Choose the SIP that has to be paused and select the 'Pause SIP' option.
  4. Fill out the SIP pause form and mention the period for which this has to be done.

Different AMCs provide different pause periods for additional SIPs. The auto debit gets reapplied when the pause period expires.

What happens if you miss paying for one month?

We have reached the other half of the discussion, where we will discuss the consequences of missing an instalment without prior notice to the bank or AMC. Although the AMC might not take any action or charge any penalty, the bank might charge a sum on defaulting a payment.

It is missed when an investor fails to maintain the minimum account balance required for the SIP. If your SIP instalments are missed continuously for three months, it automatically gets cancelled, but the existing investments may remain invested and cater to returns.

Effects on CIBIL Score

Missing SIP instalments affects your CIBIL score for the bad. That's why it is advised not to cut or discontinue your SIPs as far as possible. A bad CIBIL score results in rejecting loans and other services like credit card applications.

Key Takeaways

  • Starting a SIP is a long-term commitment.
  • There might be times when you have no options left to cancel or pause a SIP.
  • You should avoid missing SIP payments as far as possible, as it affects the CIBIL score.
  • A low CIBIL score hinders the path of loan or credit card applications in the future.
  • If you must stop or pause your SIP, consider informing the bank and AMC beforehand.
  • The invested sum remains invested and makes returns even after the cancellation of SIP before the completion.
  • Auto debit feature restarts after the expiry of the SIP pause period.