How are you all? Mutual Fund Investments are great and one of the best ways to accumulate a good corpus, for one's financial goals. When people plan to start their investment in Mutual fund, not everybody wills to invest a lump-sum amount, secondly not everybody has lump-sum amount, in thousands or lakhs, at a time to invest in mutual funds, thus people start looking for other alternatives, and then SIP (Systematic Investment Plan) appears as a rescuer.
SIP is the most convenient and a good opportunity to invest in mutual funds and accumulate a big capital gain, to accomplish your dreams. There are investors who get unstable when their funds start giving negative returns and decide to stop their SIP installments, also when people fail to arrange the monthly SIP, due to some emergencies, they decide to stop their SIP, although it is always advised to investors if you are unable to pay the SIP installment for one or two month or more, don’t decide to stop your SIP, rather you may pause your SIP for one or two month, and then again resume it after that period, and let your investment continues to grow.
Let us understand, why we shouldn’t stop our SIP, and how can we pause our SIP.
What is a SIP (Systematic Investment Plan)?
Well, we are already aware of the notion of SIP. It is a facility offered in Mutual Funds, where investors can opt to regular investments in a disciplined manner, that is they can invest a fixed amount of their total part of investment at a fixed interval of time. As the investor, invest on a regular basis through SIP, they need not arrange a big amount like in lump-sum, rather they can start their investment with an amount as small as Rs 500 invested in regular intervals.
SIP is friendly to your pocket, also when an investor invests via SIP in mutual funds, they are free to decide the amount to be invested, the interval, and the frequency of investments, also they can stop their SIP, whenever they want to.
SIP has a feature, popular as Rupee Cost Averaging, that helps in protecting your investments, from the effects of market fluctuations.
Well, it is always advised to investors, to not stop their SIP, just because your fund is giving negative return, as when markets turn weak and NAVs of funds go down, every SIP fetches more units to their investors. These accumulated units will help you build a huge corpus.
Reasons You Shouldn’t Stop Your SIP
There are many reasons, that should be recognized before you decide to stop or cancel your SIP. Some of the reasons I am illustrating here have a look at them:
- Many people decide to stop their SIP and sell their mutual fund units when their scheme shows volatility toward market fluctuation and give a negative return, although it should be avoided, as when markets turn weak and NAVs of funds go down, every SIP fetches more units to their investors. These accumulated units will help you build a huge corpus.
- Those investing through SIPs in Equity mutual fund should always hold their investments for a minimum of five years, as Equity mutual fund, gives you its best when you carry it for the long-term.
- Those planning to stop their SIPs due to lower returns should think again, in fact instead of stopping your SIP, think of increasing your SIP amount if your income has increased. This will help you build a good corpus.
Pause Your SIP Instead of Stoping It!
If you have some other and important work where there is an urgent need of money, and because of this you won't be unable to pay some of your next SIP installments, say for two or three months, then instead to stop your SIP plan, pause your SIP, and then again resume it after that period.
You can pause up to about 6 installments or 5 months' worth of SIPs, depending on what your mutual fund house allows, also check that whether you AMC (Asset Management Company) allow for SIP pause facility or not, because presently not all AMC allows the facility to pause a SIP.
What to Do, To Pause A SIP?
First Check whether your fund house avails the facility to pause an SIP, currently AMC’s such as ICICI Prudential Asset Management Ltd, Invesco India Asset Management Co. Ltd and Reliance Nippon Life Asset Management Co. Ltd allows you to pause your SIPs.
You can either write a letter to your AMC, asking to pause your SIP, for a certain period or fill a form, if your fund house has one. You need to give sufficient notice to your fund house.
Once you requested your AMC to pause your SIP, you need to wait for at least one month, as the mutual fund house needs time to send the ‘pause’ mandate to the bank, which takes time.
Okay, so as of now you must have understood why stopping a SIP, is not beneficial for your investment, so better you pause your SIP. A SIP pause is temporary, and you can restart it and let your investments continue to grow.
You can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).