What happens if you miss your date with SIP?

If you’re investing in mutual fund schemes via a Systematic Investment Plan (SIP), what happens if you fail to make your SIP payment?

If the SIP is set up through auto-debit, and there’s a month where there isn’t enough balance in the account, resulting in the SIP payment bouncing, what happens?

What consequences will this interruption in regular investment have on your funds?

Will you have to pay a penalty, and will the missed SIP payment installment need to be added in the next payment, How will this disruption in consistent investment affect your funds?

Here is the breakdown to help you

Investments in mutual funds via SIP are consistently on the rise. According to a recent report from the National Stock Exchange, the mutual fund holdings in listed companies have surged to a historic peak. Specifically, investments through SIP soared to ₹19,271 crore in March 2024, marking an unprecedented high compared to ₹14,276 crore recorded in March 2023.

These numbers suggest that investors are responding positively to various mutual fund schemes, as evidenced by their substantial investments.

There are two methods for mutual fund investment. One approach involves lump sum investment, where investors allocate funds into their chosen mutual fund scheme in a single transaction. This approach may not be suitable for every investor. Especially for retail investors, this method becomes somewhat difficult because it requires investing a large amount at once.

The alternate method of investing in mutual funds is SIP, an acronym for Systematic Investment Plan. In SIP, investors regularly invest a fixed amount in a scheme at predefined intervals, such as monthly or quarterly.

You have the flexibility to select options based on your convenience. With this approach, there’s no requirement to deposit a large sum all at once.

Mutual fund SIP is highly favored among retail investors like ourselves, allowing for gradual investment. You can arrange auto-debit for your SIP installment, alleviating the need to remember the due date. A fixed amount is automatically deducted from your bank account on a specified date each month and invested in the mutual fund scheme.

Auto-debit in SIP offers advantages, yet it also has drawbacks.

For instance, if on the scheduled SIP date, there’s insufficient balance in your account, the auto-debit will bounce.

Typically, mutual fund houses do not levy penalties for this. Nevertheless, if there’s inadequate balance for the auto-debit mandate via ECS (Electronic Clearing Service) or National Automated Clearing House (NACH), you might incur penalties.

When a SIP bounces, the bank may levy a penalty ranging from ₹100 to ₹750. To evade this bank penalty, you can opt to manually deposit the SIP installment rather than relying on auto-debit. Alternatively, you have the option to pause the SIP if you lack funds for the deposit.

Typically, companies permit investors to pause SIP for a maximum of 6 months, although rules may differ among companies. For details on this, you can reach out to your mutual fund company.