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Time To Stop SIPs Research Team | Posted On Thursday, October 04,2018, 03:30 PM

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Time To Stop SIPs



After demonetization, you and several investors rushed to deposit old 500 and 1,000 rupee notes in banks. As money was pumped into savings bank accounts and current accounts, banks cut savings bank interest rates. The Government cut down interest on small savings schemes like PPF, SCSS and NSC. After small savings scheme interest rates were cut, banks had no choice but to cut FD rates.

Investors were stuck? Where would they invest to get good returns? They invested heavily in mutual funds. Even senior citizens rushed to invest in mutual funds. You and other retail investors pumped a record Rs 6,222 Crores in SIPs in December 2017. Investors put in a massive Rs 7,554 Crores in May 2018 in SIPs and after a slight dip, SIPs in July were back to Rs 7,554 Crores. For those who don’t know, SIPs are a method of investing in mutual funds.

Now, things are changing. As crude oil prices rise because of US sanctions on Iran, petrol and diesel have hit record prices in India. India imports more than 80% of crude oil needs. Petrol has crossed Rs 91 a litre in Maharashtra. Currencies of emerging Nations have crashed against the US Dollar. The rupee stands at over Rs 73.71 against the Dollar as trade wars between US and China weigh heavily on the rupee.

Then came what many investors call India’s Lehmann moment. Defaults on commercial paper by IL&FS a top financial services firm, shook the stock markets in India. Then, a top mutual fund in India DSP, sold Rs 200 – 300 Crores of DHFL commercial paper at a discount. DHFL is a top NBFC in the housing finance space. Questions were asked on the liquidity of NBFCs in India.

The IL&FS crisis rattled investors. Investors sold over Rs 70,000 Crores in mutual funds. According to CAMS a mutual fund registrar, investors have exited liquid funds with more than Rs 69,000 Crores rushing out. As investors seek the safety of FDs and fixed income securities, FD interest rates are on the rise. As many investors stop SIPs, the question arises….Should you stop SIPs in mutual funds?

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Time To Stop SIPs 

What are SIPs? Systematic Investment Plans popularly called SIPs are not mutual funds, but a way of investing in mutual funds mostly equity mutual funds. You invest small amounts at regular intervals say daily, weekly or monthly in mutual fund schemes.

1. Why investors are stopping SIPs?

The stock markets have corrected heavily in recent times. High oil prices and the rupee fall against the dollar have spooked investors. Investors redeemed Rs 10,983 Crores in July from equity schemes. Compare this to equity scheme redemptions in August which were a massive Rs 14,948 Crores.

Which investors are stopping SIPs? After demonetization many DIY (Do It Yourself) investors pumped money into equity mutual funds, hoping to earn high returns. These investors put money in mutual fund direct schemes and are redeeming and stopping SIPs as markets crash. Investors who are investing with the help of sound financial advice provided by financial advisors are not stopping SIPs or exiting mutual funds.

2. SIP cancellation

Financial advisors tell you not to stop SIPs in adverse market conditions. This is sound financial advice and you must stick to it. If you still want to cancel SIPs, follow online SIP cancellation.

It’s easy to stop or pause SIPs. You download SIP cancellation or the SIP pause form from the mutual fund website and fill it up. You then submit it to the mutual fund distributor or the mutual fund Company.

  1. Download SIP cancellation form and print it on A4 page.
  2. You fill up the start date and the end date of the pause, very clearly in the form. You also fill name, folio number and SIP details. You then sign the SIP pause form.
  3. Fill details like:
  1. Sign and submit SIP cancellation form to the mutual fund house.
  2. Maintain a copy of the SIP cancellation form and the acknowledgment slip to track the status of SIP cancellation form.
  3. It takes around 30 days to stop SIPs ECS after submitting the request.

Cancel SIP Online:

Log on to the mutual fund online and choose cancel SIP. Your SIP will be cancelled within 30 days of your request.

3. How to pause and restart SIPs?

You must have seen the traffic lights, Red, Orange and Green. Just as Red says Stop and Green says Go, Orange says pause. In much the same way, SIPs can be paused.

Many mutual funds allow you to pause SIPs, but do note this is not the same as stopping SIPs. You can stop SIPs for sometime, but you have to restart SIPs after a while.

Different mutual fund houses allow you to pause SIPs. Prominent mutual funds like ICICI Prudential Asset Management Ltd, Invesco Asset Management Co and Nippon Life Asset Management Co, allow you to pause SIPs.

  • Write a letter to your mutual fund house asking for a pause in SIPs.
  • You have to give sufficient time to the mutual fund to pause SIPs. Try to give a month’s notice to the AMC vis-à-vis pausing SIPs.
  • When you start SIPs, the mutual fund registers a mandate with the bank and amounts are automatically debited from bank account on the requisite date.
  • If you give sufficient notice to the fund house visa-vis pausing SIPs, there’s sufficient time for the mutual fund to pause mandate to the bank and instruct the bank not to debit money from the bank account. This happens only when the SIP gets registered under the ‘standing instruction’ SIP mandate.

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