What are SIP bounce charges? How to avoid such charges?

When your account lacks the minimum amount needed to continue your SIP investments, you may end up missing that particular SIP. Many believe that skipping an SIP could result in fines or even the cancellation of subsequent SIPs.

What are SIP bounce charges?

The asset management company (AMC) usually registers an electronic clearing service (ECS) order with your bank when you enrol in an SIP. The bank may impose a fee if you need more money in your account to fulfil your SIP commitments. The sum differs from one bank to another. These fees do not include the 18% goods and services tax (GST). Some banks do not impose these fees on high-value and priority customers.

If you fail to make your SIP payments, you should remember the following two things:

  • The mutual fund house will cancel your SIP investment if you fail to make three consecutive payments.
  • When your account balance is low, and you fail to make your SIP payment, your bank might impose a penalty. When this happens, it is known as dishonouring the payment and a fee is associated.

How to avoid missing your SIP installment?

As you are aware, investing via the SIP route lowers the risk of timing the market incorrectly, helps in managing volatility, and eventually averaging the initial investment cost.

The SIP approach will enable you to purchase additional units when markets are weak. Therefore, you will miss the chance to acquire more units if you fail to make your SIP installment payment when the market is favourable.

Here are a few things you need to do never to miss SIP instalments:

  • You enter your phone number and email address to receive notifications when your SIP instalments are due. By doing this, you can only avoid the unneeded fines and fees that your bank may apply if you have enough money to cover auto-debited transactions.
  • Keep an eye on the balance in your bank account. Try to raise the amount before the SIP deadline by depositing into the account if it falls low and is insufficient to cover your SIP payment.
  • You can also halt your SIP investing if you expect significant expenses and cash flow issues. Many mutual fund companies let you stop your SIP instalments for as many or as long as you do want, and then resume automatically.

Can you stop or pause your SIP?

If your fund house has the option, you can either fill out a form or write a letter to the AMC to cancel or pause a SIP. You can digitally halt SIPs through some AMCs and internet platforms as well.

However, you must apply 15 days before the SIP’s planned debit date to cancel or postpone one. Some AMCs expect a notice at least 30 days beforehand. The fund house will send your bank a request to cease or pause the bank mandate whenever you apply to stop or pause an SIP.

Bottom line

If you cannot make SIP payments for the plan’s duration, you fear losing money in mutual funds. Such circumstances might occur for various reasons, such as when you are having financial difficulties or are uncertain about your job or your business’s income. In these circumstances, you might be unable to continue making your regular SIP contributions.

It’s acceptable to skip a few payments because SIPs are a long-term investing option. Your previous investments will continue to generate a return, and you can withdraw them whenever you want, unlike an insurance policy where failure to pay the annual premium could result in policy deactivation.

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