A Systematic Investment Plan (SIP) is often seen as a disciplined way of investing for the long term. By investing a fixed amount at regular intervals, investors get market exposure without having to make a fresh investment decision every month. This has made them increasingly popular among Indian investors.
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For salaried investors, setting up a SIP is fairly straightforward. A fixed amount is deducted from the bank account every month, either manually or through an auto-debit mandate. Many investors choose a SIP date close to their salary credit date, so the investment is made before other monthly expenses.
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But what happens when the regular income stops?
When your regular income stops, you may struggle to fulfil your SIP commitments. This could happen due to a job loss, a career break, or a temporary cash-flow problem. In such a situation, continuing the same SIP amount may not always be possible.
Investors need to understand that an SIP is a mode of investing, not a separate investment product. If the monthly payment is missed, the existing investments do not automatically disappear.
In India, most mutual fund houses generally allow investors to miss SIP installments for up to three months before the SIP mandate is cancelled. There is usually no penalty for missed installments. The SIP simply stops if payments are not made within the permitted period.
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To be clear, cancellation of the SIP does not mean the existing investment is withdrawn. The money already invested remains in the fund and continues to grow based on fund returns.
However, once the SIP is cancelled after repeated missed payments, investors may need to register a fresh SIP to restart their regular investments. Your existing SIP will remain in your trading/demat account, now acting as a lump sum investment.
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