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SIPs offer auto-debit convenience but insufficient funds can cause complications. If the investor fails to keep the required balance in his account it may lead to penalties
Investors can request a temporary suspension, or pause, of their SIP from their mutual fund company. (Representative/News18 Hindi)
There are many ways to invest in the stock market. Investing in mutual funds is one of the popular methods. Choosing the right mutual fund has the potential to build wealth over time. For long-term investment, a Systematic Investment Plan (SIP) of mutual funds is often considered advantageous. SIP is an investment plan that involves investing a fixed amount of money at regular intervals.
When investing through a Systematic Investment Plan (SIP), maintaining discipline is crucial. But one should be aware of the penalties and how it will impact their fund if one misses an SIP installment.
SIPs often offer the convenience of auto-debit, linking directly to a bank account for automated payments. However, insufficient funds in the linked account can lead to complications. If an account holder forgets to maintain the required balance for their SIP instalment, they risk incurring penalties due to the failed debit.
Banks Levy Penalties for Failed Auto-Debit Transactions
Despite the convenience of automated SIP (Systematic Investment Plan) debits, transactions can fail due to insufficient funds in linked bank accounts. While mutual fund companies generally do not impose penalties for missed SIP instalments, banks may charge fees ranging from Rs 100 to Rs 750 for unsuccessful auto-debit attempts.
Different banks impose varying penalty charges for failing to maintain a sufficient balance in accounts to cover auto-debit mandates through Electronic Clearing Service (ECS) or National Automated Clearing House (NACH).
Additionally, Securities and Exchange Board of India (SEBI) regulations empower mutual fund companies to cancel an SIP if an investor misses three consecutive instalments.
SIPs can be paused temporarily
Investors can request a temporary suspension, or pause, of their SIP from their mutual fund company. This allows for a halt in investments for a chosen period. Once the investor’s financial situation allows, they can reactivate the SIP and continue investing.
