In today's uncertain economic times, job loss or sudden financial crunch can happen to anyone. In such difficult times, the first concern is about the household expenses and the installments deducted from the bank account every month. If you have started a Systematic Investment Plan (SIP) in mutual funds to secure your future and there is not enough balance in your bank account due to loss of job, then there is no need to panic. Often investors fear that if they miss one or two installments, the mutual fund company will impose heavy fines on them or all their money deposited so far will be confiscated. But the reality is that mutual fund SIP is not seen like a bank loan EMI. Under the rules of Securities and Exchange Board of India (SEBI) and Association of Mutual Funds in India (AMFI), investors have been given complete relief and flexibility in this situation.
First of all, understand clearly that if any month the SIP installment fails due to insufficient balance in your bank account, then the Mutual Fund House (AMC) does not impose a penalty of even a single rupee on you. Your investment account remains fully active and you continue to get market-based returns on the mutual fund units purchased so far. However, the real financial loss here may be from your own bank. When you start a SIP, you give permission to the bank for auto-debit (NACH or e-Mandate). In such a situation, if there is no money in the account on the stipulated date, the ECS or auto-debit mandate gets bounced. In case of failure of this mandate, your bank may deduct ₹150 to ₹500 (including GST as per bank's rules) as 'bounce charge'. If the account balance is consistently low and mandates bounce every month, this bank charge may become an unnecessary burden for you.
If an investor continuously skips SIP installments without any notice, the system automatically closes that SIP mandate after a certain limit. As per the general rules of SEBI and the fund house, if your monthly SIP bounces for 3 to 6 months continuously (this limit is 3 or 6 installments as per different fund house and platform), then the mutual fund company cancels your SIP permanently. However, cancellation of SIP does not at all mean that your money has been lost. Whatever amount you have invested in the previous installments remains completely safe in your folio number and continues to benefit from compounding until you request redemption yourself. Also, SIP bounce does not have any negative impact on your CIBIL Score, because SIP is not a loan but your own investment.
If you feel that you will not be able to continue investing for the next few months due to job loss, then instead of waiting for the installment to bounce, use the 'SIP Pause' facility in time. Almost all mutual fund companies and investment apps give their customers the option to temporarily stop SIP for periods ranging from 1 month to 3 or 6 months. For this, you have to submit an online request at least 10 to 15 days before your SIP deduction date. The biggest advantage of pausing SIP is that auto-debit is not attempted from your bank account, due to which you are completely saved from bounce charges of the bank. As soon as you get a new job or your financial situation improves, your SIP automatically restarts after the stipulated period without any new paper hassles.
Immediately after leaving the job, many people panic and decide to redeem all the money from their old SIP, which can prove to be a big loss in terms of long-term wealth creation. If you have an emergency fund, use it first and leave your SIP only by pausing or canceling it so that the old investment keeps growing in the market. But if it becomes necessary to withdraw money to run the household, then definitely check the exit load and tax rules before withdrawal. Withdrawals from equity mutual funds within one year of investment usually attract an exit load of 1 per cent and 20 per cent short term capital gains (STCG) tax on profits. Therefore, it would be wise to first stop the SIP mandate through online mode and opt for partial withdrawal only when absolutely necessary.