Deputy Managing Director of SBI Mutual Fund D.P. Lion7 minutes ago
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Systematic Investment Plan i.e. SIP is a disciplined way of investing regularly in mutual funds. Every month Rs 26 thousand crores are coming into various mutual fund schemes in the country through SIP.
In most cases, the amount is auto-debited from the bank at the scheduled time. But sometimes due to circumstances or carelessness, investors default in paying SIP installments. In such a situation, what effect will missing SIP have on your investment? Let’s try to understand this…
Is there a penalty for missing SIP? Mutual funds generally do not levy penalty on missed SIPs, but banks charge a penalty of Rs 150 to ₹750 for not having sufficient funds in the account for SIP, depending on the bank’s policy. Daily, Weekly, 15 days or Monthly SIP can be automatically canceled if 3 consecutive installments are missed. Quarterly, bi-monthly or longer interval SIPs get canceled if two consecutive installments are missed.
How does this affect our investments? The investment journey started for financial goals may get disrupted. You lose the opportunity of rupee cost averaging in line with market movements. Every missed SIP reduces the invested amount, which directly affects the power of compounding over time and towards your corpus. In such a situation, there may be a need to adjust the time frame of your goals. Achieving your goals may require large investments in the future.
What kind of strategy should be adopted to ensure that SIP is not missed? Make sure to select the date for SIP immediately after the salary arrives. Create buffer stock in the account to avoid unexpected expenses and insufficient balance problems. If you face financial constraints, reconsider your SIP investments or discretionary expenses instead of canceling the SIP immediately. There is a facility to modify and pause the SIP if necessary. You can start it again later when you get money.
- Start investing with a small amount. Increase investment with increase in income and lifestyle. Keep in mind… Consistency is the key to maximize compounding benefits, so keep the investment flowing.