What happens when an SIP is stopped in a mutual fund scheme?

February 15th, 2023 News

Investments in Mutual funds can be done in two ways – Lumpsum and SIP.

SIP (Systematic Investment Plan) is a method of investing a fixed sum regularly in a mutual fund scheme. Through affordable amounts invested over a period, and with capital appreciation of the investment, an investor is able to create a large fund for his future family needs.

The amount of SIP gets automatically deducted from the bank account of the investor for the period selected by him. However, there are various situations that may occur due to which an investor has to stop the ongoing SIP investment. The reasons may be - disturbance in regular income, increase in expenses, emergency needs or any other.

As the need of stopping an SIP arises, all mutual fund schemes allow the investors to stop the SIP anytime without any penalty or charges. It generally takes 30-45 days to stop an SIP from the date of request raised by the investor. Once the SIP stops, the future purchases in the scheme get stopped and no auto debit happens from the investor’s bank account. The amount already invested remains in the fund and keeps growing.

At times, the investors have the confusion about what happens to the existing fund after the SIP stops, does it make any further gains etc. The below points address various such queries -

  1. What does “SIP Stop” do?
    When an SIP is registered, the SIP amount gets automatically deducted from the bank account of the investor on a monthly/ weekly/ yearly basis depending upon the frequency of the SIP. SIP Stop cancels this auto deduction, hence future purchases in the scheme get stopped.

  2. Can a stopped SIP be restarted in future?
    Yes, Once an SIP is stopped, an investor can anytime restart the SIP of same amount/ revised amount in the same scheme.

  3. Does SIP Stop creates any charges or penalty on the investor?
    No, There are no charges/penalty for stopping an SIP in a scheme. It is completely a free of cost facility.

  4. Does SIP stop automatically redeem the invested amount also?
    No, SIP stop just cancels the future auto debit from the bank account. The amount already invested remains in the scheme and keeps performing.
    In case any investor wishes to redeem the invested amount also, a separate request has to be submitted with the fund house.

    There are few schemes which have lock-in periods for investments like Equity Linked Saving Schemes(ELSS). In such schemes, the amount equivalent to value of free units (Units which are out of lock-in period) can be redeemed by the investor when needed.

  5. What happens with the already invested amount after stopping SIP?
    When an SIP amount gets invested in a scheme, units are allotted to the investor. When an SIP is stopped, the units already allotted remains invested and their value keeps performing according to the securities in the scheme.

This can be understood with the following real example.

An Investor started an SIP of Rs. 7000 per month in ICICI Balanced Advantage fund in July, 2015 and stopped it in July, 2017. In this way, he invested total Rs.1,75,000 in the scheme till July 2017, against which in total 6350.643 units were allotted.

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