A systematic investment plan (SIP) is an excellent way of investing in mutual funds. It allows you to invest small amounts on a monthly, quarterly, or yearly basis. Investing via SIP is the most popular mode of investing in mutual funds among young investors. It instils financial discipline by encouraging you to set aside a fixed sum regularly for your investments.
Many investors decide to stop their SIP and exit equity mutual funds when the stock markets fall, which is not a good move. You must continue SIPs despite a stock market crash as it helps you average out the purchase price of mutual fund units over time. Investing in equity mutual funds through SIPs with a long-term horizon will help you mitigate market risk and volatility to a great extent. However, many investors do not think this way, and they stop their ongoing SIPs when stock markets crash.
Stopping SIPs is not advisable if you want to attain your long term financial goals. However, if you still want to stop SIPs, the following are the steps:
You may cancel SIP even if you have invested through a mutual fund distributor. It helps if you inform your mutual fund agent who fills up the cancellation request for the SIP with the respective AMC.
If you have activated ECS for SIP payments, then you must inform your bank through which SIP payments are made to deactivate the ECS and then notify the mutual fund house. A SIP would be automatically terminated when the ECS payments are not made for a period of three months.
You may consider pausing SIPs if you have insufficient funds for your daily needs. However, it’s advisable to maintain at least three months worth of SIPs in your emergency fund to ensure the continuance of investment to attain long term financial goals. Moreover, experts recommend that you pause SIPs instead of cancelling them when you are short of funds.
Follow these steps to pause your SIP:
If you miss your SIP ECS mandate then banks would levy a penalty. You may find this a burden as you don’t have sufficient funds to continue SIPs and you incur a fine. However, SIP pause facility helps as the AMC sends instructions to the bank asking them to pause SIP mandate for a certain period (It depends on the duration you have chosen) if you pause the SIP.
Remember these points before pausing your SIP:
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