How to Stop/Discontinue SIP (Systematic Investment Plan)

Investments in mutual funds through Systematic Investment Plans (SIPs) can be stopped in both online and offline ways. There is no charge levied for discontinuation of SIPs apart from the Exit Load* which a fund house sometimes charges for redemption (when you discontinue permanently). Banks could levy some penalty charge if any auto payment is missed in the case of temporary cancellation.

*Exit Load is the penalty charged by the fund houses when an investor redeems the mutual fund plan before the lock-in period or before the minimum time period stipulated for a scheme. It is not charged if SIP is terminated but only at the time of redemption.

What are Systematic Investment Plans (SIPs)

Systematic Investment Plans (SIPs) are a mode of payment, mostly associated with mutual fund schemes, as an alternative to a lump sum investment. It allows one to make small regular payments at periodic intervals (generally on a monthly basis) which is light on pocket as one can begin SIP with a minimum amount of ₹1,000, ₹500 or even ₹100 in some cases. It is more of an inclusive financial plan that allows investors of all financial goals and limitations to develop a habit of investing and on a regular basis.

Also Read: How to start SIP

Should You Stop SIP?

Terminating a SIP is not advisable. SIP has its own advantages and always draws an edge over lumpsum investment. Its main benefits are:

• Small Installment Amount
• Power of compounding (earnings are reinvested at the same rate of interest to constantly grow the principal amount)
• Rupee Cost Averaging (more units are purchased when stock prices are low and less units of equities when prices are high)
• Significant Wealth Generation (can be used to fund children’s education, retirement plans)

Moreover, there are various types of SIPs like Trigger SIP, Top Up SIP, Perpetual SIP and Flexible SIP. You can go for Flexible SIP where you have the choice to increase and decrease the periodic amount. This can be helpful in times of crisis where you can reduce the amount of monthly payment rather than ending the SIP completely. There are Tax Saver SIPs as well, known as Equity Linked Saving Scheme (ELSS).

Investors should not give up a SIP if markets are down because it will rise gradually and SIP returns may bounce back. In case of extreme financial pressure, discontinue the SIP and restart as soon as possible.

How to Stop Your SIP Temporarily

In case you want to pause your SIP payment only for a while then you can take the following steps:

• Provide ‘stop payment’ instruction to your bank
• Maintain low balance in Bank Savings Account used for SIP payment so that standing cheque/payment instruction will get declined
• Intimate the bank once you want to redeem the plan and you are ready to make the payment

Keep in mind, if ‘stop payment’ instruction or low balance is held for more than 2 months then AMC will cancel the SIP. You may miss an installment or pause it temporarily but it is advisable not to miss or stop SIP installments for more than 2 months if you do not seek permanent cancellation of the plan.

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How to Cancel SIPs Permanently?

SIPs can be stopped temporarily or plans can be cancelled permanently through various methods. The time taken for discontinuation may vary from one fund house/Asset Management Company (AMC) to another. As an investor, you must know that SIP is a voluntary investment and no fine or additional charges can be imposed if you decide to stop the plan in the middle of the scheme i.e. before the lock-in period (apart from Exit Load that some AMCs may charge only if you redeem the plan). Below we discuss the different online and offline methods:

Online Cancellation Procedure

• You need to log in to your mutual fund account on the website of the corresponding AMC. Fill in the details like PAN, bank account details, SIP amount, etc. and select ‘Cancel SIP’. The plan will be discontinued with few days (usually 2 weeks to 1 month)
• In case you invested through an agent, you need to inform the concerned person. Similarly, if you have invested through Paisabazaar.com or any other online distributor platform, then place a request at the online portal

Offline Cancellation Procedure

• Inform the AMC and obtain an Appointment Form which is available at AMC, Registrar or the transfer agents of mutual funds. Fill in the details like PAN, bank details, scheme name and the date from which has to be stopped. Submit to the AMC branch or R & T Agent/RTA (Registrar & Transfer Agent) office. Within 21-30 days, the process of cancellation is initiated
• Request the banks to cancel the NACH* Mandate and get a written confirmation for the same. The AMC will get removed as the biller from the bank account and hence no deduction will be made for the investment folio. If stop payments instructions are given and no debit is done for two months, then SIP will be terminated automatically by the AMC

*NACH (National Automated Clearing House) is a service offered by NPCI (National Payments Corporation of India) to all banks and financial institutions, Corporates and Government/s that facilitates all interbank high volume and low value transactions (that are usually repetitive in nature) electronically using the NPCI service. It includes both debit & credit and services are known as NACH, NACH Debit and NACH Credit. It is a kind of Electronic Clearing Service (ECS). 

Why and When do Investors Cancel their SIP?

• Poor returns obtained from the SIP of the fund scheme consistently over a period of time. This demotivates the investors but it is recommended that an investor must talk to the fund manager(s)/expert(s) before terminating the mutual fund plan. Sometimes some SIPs offer optimum results only in the long run and may revive after a bad phase
• When markets are down and so are the returns which go negative. It is suggested to hold patience as the SIPs may give better returns when market trends are bullish
• Change in the objective of the mutual fund scheme or its asset allocation that will affect the returns. It may/may not match the financial goal of the investor furthermore
• Change in Fund Manager/s that will affect the style and performance of the fund. Active investors track how the fund is managed and by whom and one may or may not hold expertise in a particular kind of fund investment strategy

Calculate your SIP Returns using SIP Calculator

How to Redeem SIP

Cancellation of SIP does not mean that money invested will be reimbursed. For that, you need to start another transaction which is called redemption.

• Either go online on AMC portal and sell the units as per requirement or visit the AMC office. Similarly, you can go to RTA office if you have invested through transfer agents
• Fill and submit the Redemption Form if you have invested through an online distributor
• If your investment is through a Demat Account, then sell the units through the same account

Once the process is complete, money is transferred to your associated account through an NEFT in a few days or a cheque is sent to the registered address.