Can’t Keep Up With SIP Payments? Here’s How To Pause Them
A Systematic Investment Plan is a popular mode of investing in mutual funds. It enables you to invest in mutual funds on a monthly basis, typically over a long term of up to 20 years
Mutual funds have been a sought-after investment for many years. However, in the recent few years, rising inflation and lower returns from traditional debt instruments have been only cemented the popularity of mutual funds. According to a recent BankBazaar survey titled ‘Moneymood’, mutual funds list, for a third consecutive year, among the top three investment choices. In 2024, 62 per cent respondents chose mutual funds, compared to 57 per cent who picked fixed and recurring deposits, and 41 per cent who opted for Provident Fund and postal schemes.
Speaking of mutual funds, a Systematic Investment Plan (SIP) is a popular mode of investing in mutual funds. It enables you to invest in mutual funds on a monthly basis, typically over a long term of up to 20 years. During your investment journey, there may be times when you may not be able to make these monthly payments due to financial constraints. What do you do then? The good news is that most mutual funds allow subscribers to pause their SIP when needed. This feature can help you manage your finances more efficiently as it allows the flexibility of pausing the investment without having to withdraw from it completely.
So, if you’ve found yourself in a similar situation and need to pause your SIP, here’s how you can do that. Not only that, also find out if pausing your SIP is the right move and should you do it.
Is It Wise To Pause Your SIP?
Unexpected expenses, such as medical emergencies or sudden job loss, can strain your finances. Pausing your SIP can free up cash, and help you manage the situation. Some investors may find it unsettling to continue their SIPs during periods of high market volatility. However, it’s important to note that SIPs are designed to average out the cost of investment over time, making them particularly beneficial during volatile market conditions.
How Can You Pause Your SIP?
Pausing your SIP is a straightforward process. Here’s how you can do it:
Contact your fund house: Get in touch with your mutual fund house or distributor. Most fund houses offer the option to pause SIPs online through their website or app.
Fill out the pause request form: Some fund houses may require you to fill out a form to request a pause. This form can usually be submitted online or in person.
Specify the pause duration: You can choose the duration for which you want to pause your SIP. The pause period typically ranges from 3 to 6 months, but this can vary depending on the fund house.
Confirmation: Once your request is processed, you will receive a confirmation from the fund house. Ensure you keep this for your own records.
Should You Pause Your SIP?
Pausing your SIP, though not always the best choice, may sometimes be necessary. If you have to do it, here are a few things to consider beforehand.
Long-term goals: SIPs are designed for long-term wealth creation and pausing them could disrupt your financial goals. So, before pausing, explore other ways you can manage your finances.
Market conditions: SIPs work on the principle of rupee cost averaging, which helps reduce the impact of market volatility. Pausing during a market downturn could mean missing out on buying units at lower prices.
Alternative solutions: Explore other avenues for managing your finances such as cutting down on non-essential expenses or rearranging your budget.
Impact on returns: Pausing your SIP might impact the compounding effect of your investment, something you should consider before deciding.
Restarting Your SIP
Once your financial situation improves, you can restart your SIP. Resuming your SIP is hassle-free and most fund houses may allow you to do that online.
Consistent investing is key to wealth creation, and SIPs are a powerful tool in achieving that. However, pausing your SIP may sometimes be necessary but should be done after due consideration of certain factors. If you do need to pause, ensure you have a clear plan to restart your investments when your finances improve.
(The writer is DGM, Communication, BankBazaar.com and this article has been published as part of a special arrangement with BankBazaar)
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