A systematic investment plan, commonly referred to as an SIP, allows individuals to invest a small sum regularly in a preferred mutual fund scheme. At times, investors may be unable to make SIP payments during its tenure. Such situations can arise in case the investor's financial problems, job loss or uncertainty in income.

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Here's what happens in case investors are unable to carry on with SIP payments.

The good news

The good news is that mutual fund companies don’t penalise for non-payment of SIP instalments. It can, however, automatically get cancelled if investors fail to make the payments for three consecutive months.

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Do banks penalise in this scenario?

Yes. Banks may penalise investors for dishonouring the auto debit payments.

In some cases if the investor defaults on an SIP, the bank can charge a fee for “non-maintenance of sufficient balance” for auto-debit mandates via ECS (electronic clearing service). Banks have their set of charges for ECS rejection."

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What should investors do?

Experts advise investors to pause the SIP by sending a request in advance to the fund house in case of financial issues. They can start it later whenever they are financially comfortable.

For pausing, investors should log in to their accounts through the website of the AMC where they have invested in mutual funds through SIP. Then, they are required to browse through SIP transactions, select the 'Pause SIP' option and pause SIPs for a minimum period of one month to a maximum of six months.

Some AMCs allow investors to pause SIPs only for a maximum of three months.

The SIP will automatically start on expiry of the SIP pause period.

This facility helps as the AMC sends instructions to the bank too, asking them to pause SIP mandate for a certain period.

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(Edited by : Shoma Bhattacharjee)