When investing in mutual funds, two common methods are available for investors—lump sum and SIP (Systematic Investment Plan). While lump sum refers to making a one-time, large investment, SIP allows you to invest smaller amounts periodically, which can be more convenient for many investors. SIP is particularly popular due to its ease of use and the potential for building wealth gradually over time.

What is SIP?

A Systematic Investment Plan (SIP) is a method where a fixed sum is invested at regular intervals in a mutual fund scheme, such as monthly or quarterly. The key benefit of SIP is that it enables investors to contribute relatively small amounts consistently, allowing for both disciplined investing and potential capital appreciation. Over time, this disciplined investment approach can help individuals build a significant corpus to meet future financial goals such as children's education, retirement, or home ownership.

For example, in the Indian context, if an investor opts for a monthly SIP of ₹5,000 in a well-performing equity fund, the small but regular contributions, combined with the compounding effect, can lead to substantial wealth accumulation in the long term. This approach ensures that investors can participate in market growth without needing large sums upfront.

How SIP Works

Once an investor registers for an SIP, the predetermined amount is automatically debited from their bank account at the specified frequency. This automated process ensures that investors can stay consistent with their investments without needing to remember or make manual transfers each time. However, situations may arise where the investor needs to discontinue the SIP.

Reasons for stopping an SIP may include:

• A temporary loss of income or job

• Increased household expenses

• Emergency financial needs

• Personal financial re-evaluation

   

Can You Stop an SIP Anytime?

Yes, all mutual fund schemes in India allow investors to stop an ongoing SIP without facing any penalty or fees. Generally, it takes 30 to 45 days for the SIP to be discontinued from the date the request is submitted. Once the SIP is stopped, no further deductions occur from the investor’s bank account, but the amount already invested remains in the scheme and continues to grow according to market performance.

Common Queries Regarding stopping ongoing SIP

1. What Does Stopping an SIP Do?

Stopping an SIP merely halts future contributions. The auto-debit from the bank account is canceled, and no additional units will be purchased. However, the investments made up until the stop date will remain in the fund and continue to be subject to market fluctuations.

2. Can You Restart a Stopped SIP?

Yes, a stopped SIP can be restarted at any time. The investor can either resume the SIP with the same contribution amount or adjust it to a different value, depending on their financial situation.

3. Are There Any Charges or Penalties for Stopping an SIP?

No, there are no penalties or charges associated with stopping an SIP. The process is entirely free, allowing flexibility for investors to manage their investments without financial burden.

4. Does Stopping an SIP Automatically Redeem the Invested Amount?

No, stopping an SIP does not mean that the invested amount is automatically withdrawn. The existing investments will continue to stay invested in the mutual fund scheme, and their value will fluctuate with the performance of the underlying assets. If an investor wishes to withdraw the invested amount, they need to initiate a separate redemption request with the mutual fund company.

It’s important to note that some mutual fund schemes, such as Equity Linked Savings Schemes (ELSS), have a lock-in period (typically three years). In these cases, only units that are out of the lock-in period can be redeemed after stopping the SIP.

What Happens to Existing Investments After an SIP is Stopped?

When an SIP is halted, the units already allocated to the investor remain in the mutual fund. These units continue to benefit from any capital appreciation or income generated by the underlying assets in the portfolio. For instance, if the fund holds stocks or bonds that increase in value, the NAV (Net Asset Value) of the units will rise accordingly.

Real-World Example

Consider an investor who started a monthly SIP of ₹7,000 in the ICICI Prudential Balanced Advantage Fund in July 2015 and continued it until July 2017. Over this period, the investor contributed a total of ₹1,75,000. In return, the investor received 6,350.643 units of the fund.

Despite stopping the SIP in July 2017, the value of the 6,350.643 units would continue to change based on the performance of the mutual fund's underlying assets. If the NAV of the fund rises due to favorable market conditions, the value of the investor's total holdings will also increase. Hence, even after the SIP is stopped, the investor continues to benefit from potential market growth.

This example highlights the flexibility of SIPs—while contributions may stop, the investments made so far remain intact and can still work towards generating returns.

Conclusion

SIP provides an excellent method for systematic and disciplined investing in mutual funds. Investors can start with small, manageable amounts and gradually build wealth over time. Even if the need arises to stop an SIP, the existing investments will continue to grow, offering long-term benefits. Whether for short-term financial needs or long-term wealth creation, SIP is a flexible and powerful tool in the hands of Indian investors.