Sometimes, due to unforeseen consequences, one may have to reallocate their funds or liquidate their holdings in instruments like equities or mutual funds and stop SIP investments. This article details the steps an investor can employ to stop SIP online as well as offline.
This article covers:
- What are Systematic Investment Plans (SIPs)?
- Should you stop SIP?
- How to temporarily stop SIP?
- How to cancel SIPs permanently?
- Online/offline SIP cancellation procedures
- Why and when do investors cancel their SIP?
- How to redeem SIP?
What are Systematic Investment Plans (SIPs)?
SIPs are a mode of payment associated with mutual fund schemes. It allows one to make small regular payments at periodic intervals (such as monthly, weekly or even daily), which is light on the pocket as one can begin SIP with a minimum amount of Rs 500 – Rs 1,000 in most funds.
It is an inclusive financial plan that allows people across all goals and with limitations to invest regularly to develop a habit of investing.Systematic Investment Plan is one of the ways to begin your investment journeys because it allows you to make small payments at periodic intervals. It's light on your pocket too, as you can start with as little as Rs 500 in some funds. Click To Tweet
Should you stop SIP?
Investments in mutual funds through Systematic Investment Plans (SIPs) can be stopped both online and offline. There is no charge levied for discontinuation of SIPs apart from the exit load charged by some funds when you discontinue permanently.
Terminating a SIP is not generally advisable. SIP has its advantages and in fact, has an upper hand over lumpsum investment. Its main benefits are:
- Small instalment amount
- Power of compounding
- Rupee cost averaging
- Make market volatility work in favour
A Flexible SIP is a type of SIP where investors have a choice to increase or decrease the periodic amount. This is helpful in times of crisis as one can reduce the number of monthly payments rather than ending the SIP.
How to temporarily stop SIP?
In case you want to pause SIPs for a while, take the following steps:
- Provide ‘stop payment’ instruction to your bank
- Maintain a low balance in the account used for your SIP payment
- Intimate the bank once you want to redeem the plan and make the payment
If ‘stop payment’ instruction or low balance is held for more than two months, the Asset Management Company (AMC) will cancel the SIP. To avoid permanent cancellation, you may miss an instalment or pause it temporarily but not for more than two months.
How to cancel SIPs permanently?
SIPs can be cancelled permanently through various methods. The time taken for discontinuation may vary from one AMC to another. As an investor, you must know that SIP is a voluntary investment, and no fine or additional charges are imposed if you decide to stop the plan before the maturity period (apart from the exit load that some AMCs charge only if you redeem the plan).
Online/offline SIP cancellation procedures
Here we look at the different online and offline methods of permanently cancelling your SIP:
Online cancellation procedure
- Log in to your mutual fund account, fill in the details like PAN, bank account details, SIP amount, and so on, and select ‘Cancel SIP’. The plan will be discontinued in a few days.
- If you invested through an agent, you need to inform the concerned person. Similarly, if you invested through an online platform, then place a request at the portal. For example, one could opt for SIP cancellation through CAMS which is a transfer and registry agency.
Offline cancellation procedure
- Inform the AMC and obtain an Appointment Form. Fill in the PAN number, bank details, scheme name, and the date it has to be stopped. Submit to the AMC branch. The process of cancellation is initiated.
- Request the bank to cancel the NACH Mandate and get a written confirmation for the same. The AMC will get removed from your bank account as the biller, and no deduction will be made for the investment folio. If ‘stop payments’ instruction is given and no debit is done for two months, then SIP will be terminated automatically by the AMC.
Why and when do investors cancel their SIP?
- Poor returns obtained from the SIP of the fund scheme consistently over some time. This demotivates the investors, but it is recommended that an investor must talk to the fund manager before terminating the mutual fund plan. Sometimes, some SIPs offer optimum results only in the long run and may revive after a lousy phase.
- When markets are down, and the returns go negative. Patience is paramount when investing in the stock markets. SIPs may give better returns when market trends turn bullish.
- Change in the objective of the mutual fund scheme or its asset allocation that will affect the returns. It may or may not match the financial goal of the investor anymore.
- Change in fund manager/s that will affect the style and performance of the fund. Active investors track how the fund is managed and by whom, and one may or may not like the changes in the expertise who bring in a type of fund investment strategy.
How to redeem SIP?
Cancellation of SIP does not mean that money invested will be reimbursed. For that, you need to start another transaction which is called redemption.
- Either go online on the AMC portal and sell the units as per requirement or visit the AMC office. Similarly, you can go to the RTA office if you have invested through transfer agents.
- Fill and submit the Redemption Form if you have invested through an online distributor.
- If your investment is through a demat account, then sell the units through the same account.
Once the process is complete, money is transferred to your associated account through an NEFT in a few days, or a cheque is sent to the registered address.
SIPs are a good way to build discipline in investing and generate wealth over the long term. Nevertheless, if you wish to stop your SIP for any reason, it can be done both online and offline. There are no charges for stopping a SIP, however, stopping a SIP is not the same as redeeming an investment. Enter a ‘Stop SIP’ instruction in your bank account as well as with the AMC and you will be able to successfully stop your SIP.