Mutual funds are an excellent medium for the common man to invest in stock markets. In exchange for a minimal fee, our money is managed by market experts. In India, most of the investments in mutual funds are done through SIPs instead of the lump sum.
When one has to invest regularly with a small amount, SIP is an ideal mode for investment. So, it is important to maintain discipline while investing in mutual funds. Especially if you have chosen the path of investment through a Systematic Investment Plan (SIP), then discipline becomes more important for you. In SIP, you give the right to the fund house to withdraw a certain amount from your bank account on a fixed date every month or quarter and invest it on your behalf.
But have you ever thought that if there is not enough money in your account, as much as you have given the standing instruction to the fund house? What if you miss any of your SIP payments? Let’s have an answer to these questions.
Choose the right date:
Investing without doing the right homework can result in a loss instead of profit. Before starting a SIP, check the date on which it is being started. According to experts, you can start SIP whenever you want, but if you start it after the 10th of the month then it is better. As most of us receive the salary amount within this period. However, if your earning dates are different, choose the SIP date accordingly.
Why do SIPs get missed?
For facilitating automatic investment, there is an Auto Debit Transaction feature in SIP. On the due date, the amount automatically gets deducted from the bank account and goes to the fund house. However, sometimes our account balance gets below the minimum required payment. In this case, the money will not be deducted and the bank will charge you. Therefore, keep in mind that your account has sufficient money.
What happens in this case?
Although mutual fund companies do not charge any penalty for missing your 1 to 2 SIP payment, your bank may charge you a penalty for not keeping the amount equal to ECS (Electronic Clearing Service). This penalty amount varies from bank to bank.
Although the mutual fund company does not charge a penalty, if you miss the payment of the SIP three consecutive times, the mutual fund company assumes that you do not want to continue this SIP and they cancel that SIP.
How to avoid these charges?
If you are short on funds and do not want to pay a penalty for missing SIP, a prudent way is to Pause SIP.
If you think that in the coming time you will not be able to pay the SIP, instead of terminating your SIP simply pause it. You can continue your SIP later, whenever you feel so. However, for this, you will have to inform your mutual fund company sometime in advance, in most cases 10 days prior to the SIP date.