Missed your SIP instalment due to insufficient funds? Here’s what happens next

How many times have we been told to stick to our investments through systematic investment plans (SIPs)? The main aspect of this investment made through regular instalments, be it daily, monthly, quarterly, half-yearly or annually, is that investors benefit from the power of compounding that allows them to earn returns on their recurring investments and earnings too. 

The SIP method is the most common way of investing money in mutual funds. The investor gives an ECS/NACH mandate or adds a biller to accomplish this. After that, funds are automatically deducted from the investor's account and allocated to mutual funds depending on the investor’s directions.

However, at times, investors miss out on their SIP instalments owing to low balance in their savings accounts. At the outset, it may seem innocuous as asset management companies (AMCs) do not penalize their subscribers for missing out on SIP instalments.

However, the bank treats it as a cheque that has been returned and charges its customers for it. This fee or penalty is levied for failing to maintain sufficient funds for the auto-debit mandate via the Electronic Clearing Service (ECS). The fees range from Rs 150 to Rs 700.

To avoid such penalties, it is best to pause a SIP when an investor believes he or she will be unable to service the SIP during a specific month or period. Pausing the SIPs or stopping them for a period does not translate to redeeming or stopping the mutual fund scheme altogether. 

Investors may contact their distributors or AMCs online or offline and submit a request to pause SIP 10 days prior to the next SIP due date. This facility is, however, available for SIPs which have completed 6 months of tenure.

The SIP payments can be resumed once the investor has deposited a sufficient amount into the bank account. There are no additional fees charged by the AMC or the bank for pausing and restarting a SIP.

Only after three consecutive missed instalments will the mutual fund house cancel the SIP, which means you have enough time to replenish your savings account to continue with your investments. Though discontinued SIPs mean a sudden pause in investments, investors can continue to earn returns on their existing investments. However, this would also translate to lower wealth accumulation owing to the sudden stop in the regularity of one’s investing behaviour.