When you plan your investment, you predict the future and plan your investment timeline accordingly. That being said, there could be some unpredictable external expenses that can trigger some changes in your investment timeline. There can be times when you have other priorities and you don’t have any money to continue with your opted investment option. Opting for SIP investment will offer the much-needed flexibility. There are some fund houses that permit their investors to pause their SIP Investment Plans. It is different from discontinuing your SIPs. Rather, it is pausing your plan on a temporary basis and then continuing it within the permissible time period.
If you are wondering how to invest in SIP, it’s simple and easy. All you got to do is analyzing your investment expectations, decide your investment amount and pick a fund of your choice.
Let’s jump back to the point.
Pause in Investments
Generally, limited fun houses allow their investors to opt for the facility of break to their investors. While different fund houses have different terms and conditions, the process to pause the investment is more or less the same. Here is the process that fund houses typically follow.
The investor can dully fill in the form if the fund house offers this facility. Else, he/she can write an application mentioning the details of his plan and the reason behind the availing the pause facility.
The investor must give pre-determined notice to his/her fund house. Since these things take time, an investor can’t expect his/her SIP investment to be paused right away.
Ideally, an investor must give a 30 days’ notice to the fund house. In case his/her next SIP investment falls in 30 days notice period, the investment will be paused from the next month. It isn’t bizarre for an investment to encounter such situation because when an investor opts for an SIP, typically, the fund house signs a mandate with the investor’s bank that in turn authorizes the bank to transfer the money for the SIP on the due date. The investor must make sure when he/she pauses his/her investment, the bank shouldn’t debit the money out of his/her account and transfer it to the mutual fund house by default. Usually, this happens when the SIP investment plans are registered under the ‘standing instruction’ mandate.
The fund house would need time to intimate the ‘pause’ mandate to the bank. That’s why the investor must give a time period of at least 30 days to the mutual fund house to pause, and hold the future deductions as well.
While it is an important detail but the investor can’t afford to forget it. Some mutual fund houses offer a facility of top-up SIP or step-up SIP. By opting for the facility, the investors can opt to enhance their SIP amount by a fixed amount on an annual basis.
In case the investor pauses his/her SIP before few months the SIP is set to be increased, he won’t have to incur any losses. When he/she will resume his/her SIP and the month clashes with the top-up SIP or step-up SIP, the SIP amount will be changed to the higher amount.
How many pauses are allowed?
An investor can pause up to 6 installments on the basis of the fund house’s terms and conditions. That being said, there are some fund houses that permits the investor to avail the pause facility once in SIP’s lifetime. It is nothing but, is a safety measure as some investors might abuse the pause facility.
Summing it up
The process of pausing a SIP is simple. All it takes is filling up an SIP pause form or writing an application letter and it’s done. This is the pause that an investor wants. Now, let’s talk about the pause that an investor doesn’t want. In case his/her your bank account doesn’t have sufficient funds and his SIP investment is due, the fund house will pause the SIP after 3-5 years of default.
Before opting for an SIP ensure that you have sufficient funds to support your investment. While pause facility can be avail, refrain from using it as long as you can.