Investing in mutual funds through a systematic investment plan (SIP) is a smart way to build wealth over time.
However, there may be times when you need to cancel your SIP for various reasons, like a change in financial goals or circumstances.
Cancelling a mutual fund SIP may seem daunting, but it is a straightforward process that anyone can do with a few simple steps.
This article will guide you through cancelling your mutual fund SIP so that you can make informed decisions about your investments.
Understanding Systematic Investment Plan (SIP):
A Systematic Investment Plan (SIP) is a simple and popular way of investing money in mutual funds.
It allows you to invest a fixed amount of money in a mutual fund at regular intervals (usually monthly).
The investment amount is deducted automatically from your bank account on a specified date, making it a convenient and hassle-free investment.
By investing regularly through SIP, you can take advantage of the power of compounding and benefit from the long-term growth potential of the stock market.
Moreover, since the investment is spread out over time, you are less affected by market volatility and can avoid the temptation to time the market.
SIPs are flexible, and you can start or stop them anytime per your financial needs. They also offer the option of increasing or decreasing the investment amount regularly.
Factors That May Lead to Discontinuing SIP:
Several factors may lead to discontinuing your Systematic Investment Plan (SIP) in mutual funds. Here are a few common reasons:
Change in Financial Goals:
If your financial goals have changed, or if you have achieved your financial goals, you may want to discontinue your SIP.
For example, if you have saved enough money for a down payment on a house or your child’s education, you may not need to continue investing in the same mutual fund.
If you are facing a cash crunch or a financial emergency, you may need to discontinue your SIP temporarily or permanently.
Poor Performance of The Mutual Fund:
If the fund you invested in is not performing well, you may want to discontinue your SIP and switch to another fund with better returns.
Change in Investment Strategy:
If you want to change your investment strategy or switch to a different asset class, discontinue your SIP and redirect your funds.
If you are worried about market volatility or a potential market crash, discontinue your SIP and wait for the market to stabilise before investing again.
Market instability refers to a situation with a significant and sudden change in the value of financial assets like stocks, bonds, and currencies, leading to uncertainty and volatility in the market.
It can be caused by various factors like economic, political, or environmental events and can result in sharp fluctuations in prices, high levels of risk, and potential losses for investors.
Market instability can make it difficult for investors to make informed decisions about buying and selling securities and pose significant challenges to the overall functioning of the financial system.
Continuous Underperformance of The Fund:
Continuous underperformance of a fund refers to a situation where a mutual fund is consistently unable to achieve its expected returns compared to its benchmark or peer group over a prolonged period.
In other words, the fund’s performance is consistently lower than what investors were expecting, which can be frustrating for investors.
Various factors, such as changes in market conditions, poor investment decisions by the fund manager, or high expenses, can cause underperformance.
If a fund continues to underperform, investors may consider selling their units and investing in another mutual fund with a better return track record.
However, it is essential to evaluate the reason for underperformance and make an informed decision before taking action.
Alteration in Asset Allocation or Fund Objective:
Alteration in asset allocation or fund objective refers to a change made by a mutual fund in its investment strategy.
Asset allocation refers to the distribution of investments across different asset classes like equity, debt, and gold, while the fund objective defines the fund’s investment goals and objectives.
Sometimes, mutual funds may change their asset allocation or fund objective to achieve better returns, adapt to changing market conditions, or align with investor preferences.
For example, a mutual fund may shift its allocation from equities to debt to reduce risk or change its objective from growth to income to target a different type of investor.
If a mutual fund changes its asset allocation or fund objective, investors need to evaluate the impact of these changes on their investment goals and risk profile.
Investors should assess whether the revised investment strategy suits their needs and aligns with their objectives.
If the changes are unsuitable or conflict with the investor’s objectives, investors may consider selling their units and investing in another mutual fund that meets their requirements.
Methods to Cease SIP:
There are several methods to cease or stop your Systematic Investment Plan (SIP) in a mutual fund. The following are a few common methods:
Many mutual fund companies offer online platforms for investors to manage their investments.
You can log in to the mutual fund company’s website or mobile app and choose the option to stop your SIP. Follow the instructions and provide the necessary details, and your SIP will be stopped.
You can also stop your SIP by sending a written communication to the mutual fund company.
Write a letter or an email stating your request to stop the SIP, and provide the necessary details like your name, folio number, and investment amount. Sign the letter and send it to the mutual fund company’s registered address.
Some mutual fund companies offer the option to stop your SIP over the phone. Call the mutual fund company’s customer service helpline and provide the necessary details to stop your SIP.
If you have set up a direct debit mandate with your bank for the SIP, you can stop the mandate by contacting your bank and requesting them to stop the debit.
It is important to note that you may be charged an exit load or other fees for stopping your SIP, depending on the terms and conditions of the mutual fund scheme. Make sure to check these details before initiating the process.
An offline approach refers to a traditional or non-electronic method of communication or transaction.
In the context of mutual funds, an offline process could include,
- Submitting Physical Documents
- Visiting a Branch Office of The Mutual Fund Company or
- Communicating Through Traditional Mail or
- Phone Calls instead of using online platforms or mobile apps.
Online procedure refers to a method of communication or transaction conducted through electronic or digital means, typically using the internet or mobile apps.
In the context of mutual funds, an online procedure could include activities like,
- Investing in Mutual Funds
- Redeeming Units
- Modifying SIPs or
- Updating Personal Information
All the above can be done through the mutual fund company’s website or mobile app.
Online procedures are convenient and efficient and offer investors real-time access to their investments.
Temporarily Closing Your Mutual Fund Folio:
Temporarily closing your mutual fund folio means that you are putting a hold on your investments in a particular mutual fund scheme for a specified period.
This can be done if you do not want to make fresh investments in the scheme for a while but do not want to exit entirely.
You cannot make further investments or redeem any units from the scheme during this period.
Temporarily closing your mutual fund folio is useful if you want to take a break from investing in a particular scheme. Still, you intend to resume investing in it at a later date.
Essential Considerations Before Terminating Your SIP:
Before terminating your SIP in a mutual fund scheme, there are some essential considerations that you should keep in mind. These include the following:
- Your investment objective and financial goals.
- The reason for discontinuing your SIP.
- The impact of discontinuing your SIP on your overall portfolio.
- The costs of discontinuing your SIP include exit loads and taxes.
- The performance of the mutual fund scheme and its future prospects.
- The availability of alternative investment options that match your investment objectives and risk profile.
- The impact of taxes on capital gains and dividends if you redeem your units.
- The potential risks and rewards of the investment strategy you choose.
Considering these factors can help you make an informed decision about whether to discontinue your SIP in a mutual fund scheme and whether to consider alternative investment options.
Cancelling your mutual fund SIP is a straightforward process that can be done online, through written communication, or over the phone.
However, before discontinuing your SIP, it is essential to consider the reason for doing so, the impact on your investment portfolio, and the costs and taxes associated with termination.
These factors can help you decide the best action for your investment goals.
Frequently Asked Questions (FAQs):
Yes, some mutual fund companies offer temporarily stop your SIP for a specified period. This can be useful if you want to take a break from investing in a particular scheme but intend to resume investing later.
It depends on the mutual fund scheme’s terms and conditions. Some schemes may charge an exit load or other fees for discontinuing your SIP.
Check the scheme’s offer document or consult your financial advisor before initiating the process.
Many mutual fund companies offer online platforms where investors can manage their investments, including cancelling their SIP.
Log in to the mutual fund company’s website or mobile app and look for the option to stop or cancel your SIP.