Mutual Funds

Know about pausing your mutual fund SIPs

Satya Sontanam | Updated on July 29, 2020 Published on July 29, 2020

SIPs can be paused for a period of three to six months, depending on the terms of the fund house

BL Research Bureau

During the ongoing crisis, if you face a liquidity strain or wish to enhance your emergency funds, you can ‘pause’ your mutual fund systematic investment plans (SIPs) temporarily.

Generally, if SIPs are not made continuously for three instalments without any intimation, the fund house cancels your SIP. That is, the SIP will be discontinued and you cannot make any further contributions.

SIP Pause is a facility that lets you to halt your SIP investment for a temporary period. Your SIP will not be discontinued and will restart automatically after the pause period is over.

Post the pause-period, if your financial position gets back on track, you can make good all the missed SIPs by investing in the lump sum option of the same scheme.

It is a generally asked question whether the credit score of an individual gets impacted if mutual fund SIPs are skipped. Your credit score will not be affected if you miss your SIPs. That’s because SIP payment is your investment and not related to any loan repayment. Also, the mutual fund does not levy any charges if SIPs are missed.

Nuts and bolts

Almost all mutual funds provide the SIP Pause facility to their investors. The application forms for this are available on their websites.

SIPs can be paused for a period of three to six months, depending on the terms of the fund house.

Most mutual funds provide this facility only for SIPs registered under the monthly payment frequency. Only a few fund houses such as SBI Mutual Fund make this facility available for SIPs with quarterly/semi-annual or annual frequency too.

The pause facility will be activated from the next eligible instalment from the date of the request. However, the pause request has to be made at least 15 days prior to the next SIP instalment date. Some fund houses such as L&T Mutual Fund, Aditya Birla Sun Life and Franklin Templeton may ask for a longer notice period of about 20-30 days.

If the SIP pause period coincides with the step-up period, the SIP instalment amount after completion of the pause period would be inclusive of the SIP step-up amount. Say, the existing SIP instalment amount is ₹5,000 with a step-up amount of ₹1,000 (totalling to ₹6,000) from the second year onwards. If the beginning of the second year falls during the pause period, then the SIP instalment amount that will be auto-deducted after the pause period will be ₹6,000.

This facility will not be available for SIPs registered through Mutual Fund Utility or stock exchange platforms. Further, SIP Pause is applicable only for AMC-initiated debit feeds such as ECS (electronic clearing system)/NACH (National Automated Clearing House (NACH) of the National Payments Corporation of India)/direct debit.

Make use of the SIP Pause facility only if it becomes really necessary to do so. That’s because, investors can opt for this facility only once or twice – depending on the fund house – during the tenure of the investment. Also, SIP Pause request, once registered, cannot be cancelled. Besides, it is a good idea to keep the SIPs going if you can.

The filled-in SIP Pause form has to be submitted to the mutual fund house either online or through an app of the fund house or at the office of the mutual fund or at any of its authorised collection centres.

Currently, due to the pandemic, some mutual fund houses such as ICICI Prudential and Quantum Mutual Fund are accepting requests received through e-mail as well.

When an SIP Pause form is submitted to a fund house, generally, a separate communication to the bank is not required to stop the SIP auto-debit. But if you had given a separate standing instruction to the bank to debit the account on the specified date, then you should instruct your bank too to accept the SIP Pause request submitted by the fund.

Some mutual funds provide the SIP Pause facility, subject to certain conditions. For instance, Nippon Mutual Fund provides this facility only for SIP amounts of ₹1,000 and above and only for those who have paid at least six SIP instalments.

Exercise judiciously

Pausing SIPs can indeed come in handy to defer investments in times of liquidity issues. But exercise this option judiciously, since one of the objectives of SIP is to inculcate in the investor the discipline of investing. Also, SIPs remove the risk of timing the market and average out the cost of your investment by investing across market cycles. Thus, it is generally not advisable to pause SIPs in your equity funds based on market movements.

Take note

- Submit the request form at least 15 days before the next instalment

- Can be submitted online, in most cases

- Make sure sufficient balance is maintained post the pause-period

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Published on July 29, 2020
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