How to Cancel your SIP
Before you Stop/Pause your SIP....
Make sure you are doing it for the right reasons!
Red Light, Green Light?
Understand the risks of stopping and starting your SIPs!
- Stopping and starting SIP’s continuously can prove extremely detrimental to your long-term returns.
- Doing this negates the compound effect and can potentially set you back by a large sum of money in the end. Therefore, it’s always best to start your SIP with a sum of money that is comfortable for you, and does not end up overstraining your finances.
- Make sure you don’t let the flexibility of SIP’s work against you by taking them lightly, simply because they do not levy penalties or heavy exit costs. A disciplined approach to your SIP’s will go a long way in ensuring that you create wealth from them in the long term.
- The solution to having a long-term SIP is to “invest with purpose”. When you have SIP’s with clearly defined goals, you automatically keep them running for longer through the ups and downs of markets because you are focused on the big picture
- The support of an investing expert can save you from these problems in the future. An investing expert can ensure that your SIP’s are aligned to the right goals, with the right expectations and with a proper understanding of risk/reward. Moreover, they can save you from common behavioural traps associated with SIP investing!
What are some reasons why people decide to stop SIP?
Many investors start their SIP’s (Systematic Investment Plans) keeping future foals in mind – such as a child’s education or marriage, or one’s own retirement. Though many of these goals are long term in nature, many of these SIP’s end up getting stopped within a year or two, defeating the goal-planning purpose entirely. Here’s a brief exploration of why many a goal-based SIP meets its untimely demise.
Market Linked Reasons
Many investors end up stopping their SIP’s due to market volatility. For example, during the pandemic, many investors whose fund values fell sharply went and cancelled their SIP without realizing the true impact of their decision. These phases when markets fall are in fact the best times to continue running your SIP’s, because you will receive maximum rupee cost averaging benefits from these very SIP instalments.
Having accumulated a reasonable amount of liquid money through SIP’s over a two or three-year timeframe, many clients decide to stop SIP or pause their SIP’s for a while and pre-pay expensive loans instead. This is actually a valid reason to stop SIP, as one could save a significant amount of interest cost by quashing high interest loans such as personal loans or loans taken on one’s credit card. Just make sure you’re not stopping the SIP and redeeming our money after markets have fallen significantly, or you may end up incurring more in terms of foregone returns than the money saved by prepaying the loan. Also, be smart in your loan prepayment choices – start with the most expensive ones first. Also, remember that there’s no point prepaying a loan on a depreciating asset such as a car, unless the loan is in its very early stages (and therefore, interest heavy).
Home Loan or Home Purchase
Stopping your SIP’s to buy a home may not always be a smart decision. For starters, you need to ask yourself if you’re buying the said house as an investment or as an end user. Taking out a loan at 9% per annum to buy a home as an investment means that you need the asset to grow at a very high rate of return to outpace the interest cost you’ll be incurring on your EMI’s. And although buying a home as an end user is a valid aspirational goal, you need to be smart about the timing of your actual decision. Don’t forget to take the annual deduction of 2 lakhs under Section 24 into account while making your decision. In a nutshell, think twice before you liquidate your SIP’s and take on a hefty home loan instead.
The liquid and flexible nature of most Mutual Fund SIP’s works to their detriment at times, by offering investors the lure of using the saved funds for lifestyle expenditures such as a new car or an expensive family holiday. More often than not, stopping your goal-linked SIP’s to fund your lifestyle expenditures will turn out to be a regrettable decision. Compounding works in mysterious ways, and the actual rupee cost of liquidating goal-linked savings midway can be staggeringly high. Make sure you do the math on exactly how much you’re sacrificing in terms of future growth or corpus creation before you take your final decision.
Need help with Stop SIP?
How to Stop SIP
Before you go ahead and cancel your SIP, it is advisable to have a conversation with your investment manager on the real impact of stopping your SIP. Especially if you are doing it for reasons not linked to cash flow related constraints, the perspective of an investing expert can be very helpful and can sometimes stop you from taking regrettable decisions.
At FinEdge, your investment manager will assist you in stopping your SIP. At this point, you should ideally have a conversation around how the SIP stop will impact your goals, and also discuss strategies to overcome the shortfall through periodic step ups or lumpsums. The entire process is online, paperless, and seamless.
Alternatively, you can also stop your SIP by cancelling the auto debit mandate with your bank. However, this may end up impacting all your SIP’s running from that NACH mandate, and so this approach is usually not advisable.
How to Stop SIP on MF Central
MF Central, a joint initiative between CAMS and KARVY, has a number of financial as well as non-financial transactions that you can conduct online. One of these is a SIP Stop.
To Stop SIP from MF Central, follow these steps:
- Create your account here: https://app.mfcentral.com/investor/signin
- Once you have created an account, you will be able to see a list of your folios that are linked to your mobile number.
- You need to select the folio in which your SIP is running and select the Cancel SIP option
- Validate the transaction using an OTP
Do note that only SIP’s started offline can be cancelled through MF Central. SIP’s that have been started from online platforms like BSE or NSE, or through online apps, cannot be stopped from here.
How to Stop SIP Offline
If your SIP was started offline through physical paperwork, you could also stop it offline if that suits you better. To do this, you will need to fill out and submit a physical SIP stop form to the concerned authority of the AMC or the registrar (CAMS or Karvy). Here are the steps for doing so:
- Download the SIP cancellation form from the ‘downloads’ section of the Asset Management Company
- You may need to fill out details such as - the bank account of the investor that is linked to the scheme, name of the fund, folio number, PAN number, SIP amount and SIP discontinuation date. Please have these details at hand!
- Submit this form at your nearest registrar office, or at the branch office of the AMC. Don’t forget to take a stamped receiving for your records!
- The actual cancellation request for the SIP may take up to 3 weeks to be processed and varies based on the fund house.
Another alternative option is for the investor to submit a written request with the bank to cancel the SIP which is known as the NACH mandate. Once the Stop SIP instruction is given to the bank and no amount is debited to the account for two consecutive months the SIP will be terminated by the AMC.
FAQ’s – Stop SIP
Can my decision to Stop SIP impact my financial goals?
Yes, your decision to stop your SIP can affect your financial goals. Especially if your goal is many years away, even a temporary pause of 6-12 months can have a huge impact on your final corpus. For example, if you are running a SIP of Rs. 5,000 for your retirement which is 25 years away, a pause of 12 months can potentially lead to a dent of Rs. 12-13 lakhs in your final corpus value.
Will I be charged an exit load for a Stop SIP?
No, you will not be charged an exit load for stopping your SIP. However, you may be charged an exit load if you redeem the funds accumulated through SIP. Keep in mind that every SIP tranche is considered a unique purchase, and exit loads will apply to each tranche depending upon the holding period of that tranche.
Can I pause my SIP instead of stopping it?
Yes – you can pause your SIP for a minimum period of 1 month and a maximum period of 3-6 months, depending upon the specific AMC guidelines instead of stopping it.
Can an Asset Management Company stop my running SIP?
There have been times when AMC’s have stopped SIP’s – for example, a leading AMC had paused the SIP inflows into international funds in 2022 to comply with regulatory guidelines on AMC level caps on international stocks.
Can I withdraw my SIP investment amount after stopping it?
This will depend on the fund that you are running your SIP into. If your SIP fund is not locked in, you can withdraw your units anytime. However, if your SIP fund has a lock in period (for example, an ELSS), your units may be locked in for a specific time period from the SIP purchase date. Note: redeeming your SIP investments frequently can impact your goals, so it’s vital to understand how do SIP returns work before you withdraw funds.