With the coronavirus-related lockdown hitting cash flows, many companies have announced salary cuts and even layoffs. This has had a knock-on effect on systematic investment plans (SIPs) of mutual funds, with many investors looking to pause or stop them.
If you wish to pause your SIP, check with your fund house whether it offers this facility. Only a limited number of fund houses do so at present. Many that don’t have the pause facility at all are scrambling to offer it at the earliest, as it works in their favour if their customers pause, and not stop.
The number of months for which you can pause varies from one fund house to another. “In our case, SIP can be paused for a minimum of one month and a maximum of three months. The SIP pause tenure cannot exceed three months,” says Chintan Haria, head-product development and Strategy, ICICI Prudential Mutual Fund. Raghvendra Nath, managing director, Ladderup Wealth Management, informs that the pause period varies from one to six months within the industry.
The procedure for pausing, in case of ICICI Prudential MF, is as follows. Investors need to send an email to the fund house mentioning their folio number, along with the start and end date. The SIP restarts automatically once the pause period ends. Mirae Asset Investment Managers intends to provide a pause button on its web site in a day or two.
The pause notice needs to be sent to the fund house in advance. The exact notice period varies from one fund house to another. In the case of ICICI Prudential MF, it needs to be sent 30 days prior to the next SIP date. The fund house allows investors to pause only once during the tenure.
Bear in mind the route followed for investing. “If CAMS or Karvy is the registrar and transfer agent (RTA), investors need to inform the fund house to pause their SIP. But if they have invested through a platform like, say, MF Utility, they need to inform that platform. The criterion to follow is: Who sends the debit instruction to the bank?” says Nath.
Platforms like Scripbox have made it easy for customers to pause. “Customers need to go to the dashboard and click on the skip SIP option,” says Prateek Mehta, co-founder, Scripbox. They can decide to pause just 48 hours in advance. In case of some platforms, the notice may have to be given 15 days in advance. Scripbox allows its investors to skip SIP an unlimited number of times. In case of some, the SIP mandate may get cancelled if it is not honoured three-six months in a row.
Stopping an SIP: The procedure for stopping an SIP has become very simple today. “We have provided a button on our web site for stopping the SIP. There is also an email ID on our website that people can write to,” says Swarup Mohanty, chief executive officer, Mirae Asset Investment Managers India. The Association of Mutual Funds in India (under instruction from the regulator) recently asked all fund houses to provide the stop facility on their web sites. Earlier, investors had to send a physical letter to their fund house to stop their SIP. “A physical letter should ideally be sent two-three weeks in advance,” says Nath. On platforms, again, you can stop your SIP with just a click.
These procedures remain the same, irrespective of whether the bank and the fund house belong to the same or different groups.
Remember to pause or stop on time or you could end up paying a fine. “If there is no money in your account when the SIP is due, your bank could charge a fine of Rs 200-300,” says Nath.