What happens when you stop or pause a SIP
Here's the thing people miss. A SIP is just an instruction. It's not the investment itself. As SIPs are automated, the system tells your bank to deduct a fixed amount every month. It is then put into a mutual fund. That’s it.
So, what about the mutual fund units you’ve already bought? They’re separate, and they stay invested. These funds grow or dip based on the market, regardless of what you want to do with your future investments.
So, when you stop your future SIPs, your existing investment is not automatically redeemed. They continue to compound, unless you decide to withdraw the units.
It’s easy to confuse three things.
- Pausing your SIP means temporarily halting new investments, and they automatically resume later.
- Stopping your SIP means you permanently cancel your future instalments.
- Redeeming the units means you actually withdraw the money you invested.
Now, we’ll tell you when each of these makes sense.
When should you consider stopping or pausing a SIP?
SIPs work best when you leave them uninterrupted for years. But, you know, life isn’t always that cooperative. Here are certain situations when you may consider stopping or pausing an SIP.
Temporary challenges in cash flow
Think of an unexpected expense such as a job change or a gap between paychecks. When you find your money is a bit tight for a while, you may consider pausing your SIP. This gives you breathing room, but there’s no need to permanently stop your contributions in these scenarios.
Major financial commitments
A home purchase. Funding higher education. A medical emergency. These are major financial commitments and involve large chunks of cash. It’s fair to redirect funds temporarily for these purposes.
Rebalancing your portfolio
Over time, your goals keep shifting. Maybe you want more debt exposure now, or you’re consolidating funds. You may consider stopping one SIP, so that you can restructure your portfolio. This is a normal, healthy move.
Poor performance of a fund
The fund you have invested in may have genuinely underperformed over the years. It’s not a rough quarter, but consistent poor performance.
In these situations, stopping the SIP makes sense. But make sure to actually evaluate the fund. It shouldn’t be out of panic during a red week in the market.
How to stop or pause a SIP
So, how to stop or pause a SIP when you need to do it? The exact process differs slightly based on the platform. But largely, the steps are the same everywhere.
Step 1: Log in to your investment platform
Log in to the website or app of your AMC. You may also access a registrar portal like CAMS or KFintech. You may also be investing through your broker or a mutual fund or investment app. Use the platform on which you have registered your SIP.
Step 2: Locate your active SIP
Now, visit the “SIP” or “portfolio” section of the platform. Here, you will see a list of all the SIPs you’re actively having. Select the one that you want to stop or pause. Double-check the name of the fund and the amount, particularly if you’re investing in multiple SIPs.
Step 3: Choose between pause and stop
Look for options like “Stop SIP” or “Cancel SIP”. Some platforms also offer a pause feature. Often, you can pause your contributions for up to a few months.
Step 4: Confirm your request
Now, you’ll have to authenticate the request. This process usually happens through an OTP. Take note of the processing timeline once you submit it.
As per SEBI guidelines, AMCs now need to process SIP cancellations within two working days. Make sure to submit your request a few days before the date of your next SIP. Otherwise, it will result in an unwanted debit.
Step 5: Verify the status
Look for a confirmation message in your email or SMS. After a few days, log back into the platform. Make sure that your SIP shows a “cancelled” or “paused” status. Also confirm that no more installments are scheduled. Don’t skip this part. The confirmation saves you from surprise deductions.
Things to consider before stopping a SIP
Before you hit that button, “pause” and think through this.
The impact on long-term compounding
When you miss an instalment, the money doesn’t get into the market. If you stop for a few months, it’s manageable. But stopping for years can cost you more than you realise right at this moment.
Missing opportunities during market corrections
When markets dip, that’s actually when you must buy more units. Many young investors stop their SIPs during market corrections out of panic. They’re missing the opportunity to average at a lower NAV entirely.
Whether reducing the SIP amount may be a better alternative
Tight on cash but not broke? Consider lowering your SIP amount. It’s often better than stopping the contribution outright.
Review financial goals before taking action
If you’re weighing the option to stop or pause your SIP, ask yourself why you started it in the first place. If your goal still stands, a pause might be a better option than a full stop.
Can you restart a SIP later?
Yes, pretty much anytime. When you pause your SIP, you can restart it on most platforms. The websites and apps automatically renew your SIPs when the pause period comes to an end.
In case you stopped your SIP, you need to set up a new mandate. The process is quick, and you’ll be back on track quickly. Either way, don't worry about your old investment.
The units that you’ve already accumulated stay invested. They aren’t affected by the pause or stop, unless you redeem them.
Conclusion
Now, you know that stopping or pausing your SIP isn’t a scary decision. We’ve explained how to stop or pause a SIP, and it’s a built-in feature in most websites and apps for exactly these moments. The real question is, why do you want to stop it? If your financial situation demands it, you always have the option.
Before you hit “stop” or “pause”, review your goals, weigh the alternatives, and accordingly, make the call. Consider your finances and your lifestyle. Not whimsical swings in the market when you decide on your SIPs.
