What if I missed my SIP instalment?

SIP or Systematic Investment Plan allows investors to invest a fixed amount on a fixed date in a mutual fund. But what if in a month or two, you miss your SIP installment? Would there be any penalty for missing the SIP installment? Will my SIP be cancelled if you miss your SIP in a month? What will be the consequences of missing SIP?

Let’s answer these questions here.

In case you end up missing a SIP installment or two, then don’t worry. The mutual fund AMC will not penalize you. It will not cancel your SIP too if you miss one or two of them. But if you miss three (3) consecutive SIP installments due to insufficient balance in your bank account, then the AMC will automatically cancel your SIP. So the mutual fund house or AMC will cancel the SIP only you miss your SIP installments for 3 consecutive months. But even then, they won’t penalize you for SIP non-payment.

So AMCs don’t penalize you. But what about the banks? It’s possible that your bank may put a penalty for failed auto-debit transactions. And why would the bank penalize you? It’s due to the failure of not maintaining a sufficient balance for the Electronic Clearing Service (ECS) which leads to ECS rejection (just like cheque bounce). The penalty varies from bank to bank and maybe in the range of Rs 100 to Rs 750.

So even though it’s not called that but missing a SIP or two is like ‘SIP Bounce’, i.e. similar to the cheque bounce concept. And AMC will not penalize you but the banks will.

If you know beforehand that you might run out of funds on the SIP dates, you can choose to opt for the SIP Pause facility that many fund houses offer. This facility allows the investor to temporarily pause their SIP installments for a few months (up to 6 months) and restart again when financially feasible for them. Just note that all AMCs may not offer the facility to pause your SIPs.

By the way, don’t have any doubts about one thing – the investments already done via SIP in the MF scheme will continue to earn returns even after you miss your SIP or even if you stop your SIP. It’s not like insurance policies that if you miss paying your premiums, then the policy becomes inactive or lapses.

And what to do if you do actually miss a SIP installment or two?

It’s simple. If you have additional funds next month, just make up for the loss by making an additional lumpsum purchase in the same mutual fund scheme in the same folio. Ofcourse you will not get the NAV of the day on which you missed your SIP. But at least you would have invested the amount and got back your investment plan on track. Isn’t it?

That’s about the technical aspect of missing SIPs. But on the other hand, you need to understand that missing a SIP or two is fine. But regularly missing SIPs will defeat the very purpose of SIPs. Depending on market conditions when you miss the SIPs, it may be detrimental to your long-term MF SIP returns and you may end up not accumulating the required corpus for your financial goals. And that is something that you don’t want. Right?

Further Reading – SIP is the best bet for small investors

So make sure that your SIP misses aren’t regular. A month or two is fine. But not more. And if it seems feasible then over time, add an additional layer to your Emergency Fund that will allow you to set aside 3-6 month’s worth of SIP installments as a buffer. Ofcourse it’s not a typical emergency to fund your SIP. But if you can spare some resources, then think about it.

Also, choosing your SIP dates closer to your salary date is helpful as it ensures that your bank account will have money when the SIP triggers on its pre-chosen date.

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