How to Stop Mutual Fund SIP? | SIP Cancellation Online
A Systematic Investment Plan (SIP) is an excellent way of investing in mutual funds in small amounts on a monthly, quarterly, or yearly basis. Though it is important to continue investing in mutual funds, investors may need to stop their investments when they find themselves in a tough financial position. Fortunately, when it comes to SIP, it is not difficult to discontinue regular monthly payments.
If you wish to know how to stop mutual fund SIP, this blog will be your ideal guide to understanding the process. Cancelling or temporarily pausing a mutual fund SIP is quite easy, and you can do it from the comfort of your home without anybody’s help.
What is a SIP?
In recent years, investing in mutual funds has become a popular and common investment option for retail investors. There are two modes of payment via which one can invest in mutual funds. These modes of payment are SIP and lump sum. A Systematic Investment Plan (SIP) is an investment facility through which one can invest a fixed amount at a predetermined interval. In contrast, a lump sum is a one-time payment method that an investor needs to make right at the beginning of their investment.
SIP is a more accessible mode for many investors as it allows people to invest a small sum of even Rs.100 into their preferred mutual funds every month. Moreover, there are other options where investors can invest their money weekly, quarterly, semi-annually, yearly etc.
Investors can also choose to pause or cancel their SIP anytime during their investment tenure if they face any financial crunch.
What Are the Various Ways to Cancel a SIP?
There are multiple ways through which investors can cancel their SIP if they face a cash crunch or are going through financial troubles. They can opt to do so via offline and online methods. Both these ways are explained in detail below.
As an investor, you can physically visit your AMC, Registrar Transfer Agents office or the concerned authority and submit your documents to cancel your monthly SIP instalments.
Follow the steps illustrated below in detail:
Step 1: Inform the AMC about cancelling the current SIP.
Step 2: The investor needs to obtain an Appointment Form from the AMC office or Registrar and Transfer agents of mutual funds like Karvy and Cams. This appointment form will consist of the details given below which they have to fill duly:
- Bank account details of the investor linked to the mutual fund
- Name of their choice of SIP scheme that they wish to cancel
- Amount of SIP which they have been paying till cancellation
- PAN number
- Folio number
- Date from when the investor wants to stop or cancel their SIP
They need to submit this duly filled form at the AMC office or RTA office.
Step 3: After the investor has duly filled, signed and submitted this form to the mutual fund’s AMC or RTA, it will take up to 21 days to process the cancellation request. This processing period varies from one fund house to another.
Step 4: The investor needs to contact the bank from where they have set up standing instructions for SIP instalments.
Step 5: The investor then has to submit a NACH mandate, a written request to their bank, which is linked to the mutual fund.
Step 7: Once the bank receives a stop request from the investor, it will stop the auto-debit option. Furthermore, when the SIP instalment does not get credited to the mutual fund for two consecutive months, the AMC will finally terminate the investor’s SIP.
If you wish to know how to stop an SIP online, there are various ways to do so via online mode. These are:
- Through AMC
Step 1: Visit the official website of the AMC and log in to your account using folio number, bank account number associated with the folio and PAN as login credentials.
Step 2: Select the SIP which you want to stop and click on the ‘cancel SIP’ tab.
Step 3: After 15-20 working days, the AMC will cancel the SIP instalments, and SIP deductions from your linked bank account will also stop.
Step 4: If any amount is deducted from your bank within the waiting period, it will remain as individual fund units until you decide to redeem it.
- Through an agent
Step 1: You need to contact the agent through whom you had invested in the mutual fund to cancel the SIP.
Step 2: The agent will hand you a form which you need to fill out and send it back to them to request the cancellation of your SIP.
Step 3: They will send the cancellation request to the concerned AMC.
- Through an online distributor platform
Step 1: If you have invested in a mutual fund via any distributor, you need to visit the distributor’s website and log in to your account.
Step 2: Choose the SIP standing instructions which you want to cancel.
Step 3: Click on the tab “cancel SIP” to stop or cancel the SIP payments
Step 4: The distributor will forward the request to the concerned AMC.
Investors need to keep a few things in mind before stopping an SIP for a mutual fund. The fund house cannot charge any penalty for leaving the SIP because it is a voluntary investment. However, there can be an exit load that the investor has to incur if they also redeem their fund units under the mutual fund.
How to Temporarily Pause SIP?
Instead of completely cancelling your SIP payments, you can opt to pause them when you are facing a sudden financial crunch. Many fund houses offer their investors the option to pause SIP payments for up to 3 to 6 months. This way, you can make payments again to purchase fund units once you have sufficient money.
Below are steps that you can follow to pause payments in SIP:
Step 1: Log in to the official website of AMC, which offers the mutual fund.
Step 2: Navigate and find the tab where all your active SIPs have been mentioned with the fund house.
Step 3: You can then click on the pause SIP tab. Some fund houses will allow you to pause your SIPs for 1-6 months.
Step 4: The website will redirect you to the application form page, which you need to fill out and specify the period until you wish to pause your SIP payments.
Step 5: After the pause period expires, the SIP will again start automatically, and the standing instructions from your linked bank account will auto-debit your money.
Reasons to Stop SIPs
Financial experts and advisors do not recommend that investors stop their SIPs because it is an extremely convenient method to keep investing regularly. However, there can be several reasons for investors to back out from their investments and pause/cancel the SIP payments. Some of these reasons are:
- The fund has been performing poorly for a long time.
When a mutual fund consistently delivers a poor performance and shows no potential to provide higher returns in the future, many investors choose to exit it. SIPs allow an investor to gauge the performance of a mutual fund without spending their life’s savings as with a lump sum payment.
This is a major reason why some investors decide to pause or cancel their SIP instalments for a particular mutual fund.
- Volatile market conditions
Many investors with extremely low-risk tolerance tend to back away from their investments whenever the market fluctuates. Such investors can also choose to redeem their fund units if they notice that the mutual fund’s NAV is decreasing quickly.
However, if this is your reason for cancelling your SIP, you may want to rethink your decision because market volatility is a part of investing in mutual funds.
- Change in fund objectives and asset allocation
An AMC often tends to change the assets and allocate them in other kinds of securities from their initial allocation. This changes the investment objective of the mutual fund. Now the new aim of the fund may not align with the investors’ goals, which is why they can choose to stop the SIP and redeem their fund units.
- A shift in the investment objective of the investor
Many people invest in a mutual fund because they wish to achieve some personal financial goals. However, if they notice that they have already managed to create the wealth they require, they can choose to exit their investments. This is when many investors choose to redeem their fund units and stop the SIP instalments.
- The financial crunch of the investor
This is another major reason why investors often cancel their SIPs. In such cases, the investor could be unable to pay the money required for monthly SIPs. Moreover, they may need more cash and, thus, redeem their fund units.
Why Should You Not Stop Your SIPs?
When you are looking to close the SIP for a mutual fund, you should consider your decision carefully. Many investors tend to stop their SIP payments, but this can hamper their financial goals.
The following are some reasons why you should not consider stopping your SIPs:
- Continuing the investment journey
SIPs help to accumulate wealth for an investor’s life goals. Therefore, one needs to calmly stay invested and not pause or stop one’s SIP due to slight market fluctuations. This is because a fund can perform negatively at one moment and then positively the next.
Investors must be patient while investing money in any instrument in the stock market. It is always advisable to wait and see what sort of returns the fund will deliver.
- The benefit of compounding
People choose to stay invested in mutual funds when they invest money via SIPs because this method allows them to benefit from the effects of compounding. As profits from one’s investment get reinvested, it leads to more returns over time.
If an investor wants to invest over the long term, investing via SIP can help them continue the investment journey. Moreover, the more an investor spends time in the market, the power of compounding helps them get considerably more returns.
- Rupee cost averaging advantage.
SIPs allow investors to reap the benefits of market highs and lows with the rupee cost-averaging feature. As an investor pays a fixed amount every month in mutual funds, the cost of each fund unit averages out. With this feature, investors get to purchase more fund units when the market is low and fewer units when the market conditions are high.
- Long-term wealth accumulation
The markets may not always be suitable for short-term plans, but investing via SIP in mutual funds helps create wealth over a long period. If you cancel your investment when the market is fluctuating, you will miss out on the opportunity to make large profits through long-term investments.
- Professional fund management benefits
You will not have to worry about managing your mutual fund investments when you invest through SIPs. This will be done by fund managers who are financial experts and have a lot of experience handling mutual funds and generating optimal returns.
Many investors invest in mutual funds with a long tenure (say up to 10 to 15 years), but later, they may not have the financial means to continue paying SIP instalments. However, they can choose to cancel or pause the SIP whenever they want.
What are some things one should know before cancelling SIP?
Here are a few things you should know before cancelling SIPs:
> The AMC will terminate your SIP if your bank account is underfunded
> SIPs can also be terminated if you don’t pay SIP instalments for over two months.
> Fund houses do not have the power to charge the > investor any penalty if they choose to cancel the SIP.
> Investors who have started a SIP from a particular online platform can visit the same to cancel it.
I have two different SIPs. Can I cancel both of them simultaneously?
Yes, as an investor, you will have the power to cancel multiple SIPs simultaneously. Moreover, if you wish to cancel a few and keep investing in a few, that option is also available.
What is the difference between regular and direct plans in mutual funds?
In a direct plan mutual fund, the investor purchases their fund units directly from the mutual fund house’s official website. On the other hand, in a regular plan, the investor purchases the fund units via an agent, distributor or advisor.
What types of equity funds can one invest money via SIP?
The various categories under equity funds where one can invest money via SIP are:
> Index funds
> Focused funds
> Dividend yield funds
> Large-cap funds
> Mid-cap funds
> Large and mid-cap funds
> Small-cap funds
> Multi cap funds
> Sector funds
> Value funds