SIP tips: When should investors stop or redeem Systematic Investment Plans? (2024)

FAQs

When should I stop investing in SIP? ›

You may consider pausing SIPs if you have insufficient funds for your daily needs. However, it's advisable to maintain at least three months worth of SIPs in your emergency fund to ensure the continuance of investment to attain long term financial goals.

Stop and Redeem are two different features of SIP. When you stop the SIP, you actually exit or discontinue from the SIP plan and you no more have to pay the investment installment. However, redeem means that you withdraw the funds accumulated in your account.

Gradually as the market starts picking, the value of your SIP investments will bring you more returns since you possess more units now. This phenomenon is called Rupee-Cost Averaging. So if you discontinue your SIPs during this period, you will not be able to seize this opportunity.

Redemption is advised only if you are very sure that you will be losing a golden opportunity and that opportunity is certainly better in terms of risk and return than the current mutual fund. However, its highly recommend taking an expert advice before making any such decisions.

To create wealth through SIP investments, tenure of a minimum of 5 years is recommended by a majority of experts. However, you must decide based on the factors mentioned above. Perpetual SIPs allow you not to set an end-date to your investments but yet stop it any time you wish to.

The investor will have 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 months the SIP will be terminated by the AMC.

Hence for your case, you can withdraw 50% (first 2 years of SIP) without any tax. If you have been investing in debt funds, you have to pay tax according to your tax slab if you redeem before three years and marginal tax after that.

Redeeming your SIP is simply withdrawing your investment to raise money to meet interim or urgent needs. Here, you only sell a part of your investment and not all of it. This means that your SIP is still active even after you redeem held units.

Investors may consider stopping SIPs if they don't have enough money to pay their regular needs. However, most experts suggest pausing SIPs rather than discontinuing them when investors run out of money.

Continuing to invest in the market during its lows allows investors to accumulate more units, which can ultimately return good profits in the long-run, when the markets finally turn positive. That said, the only time you should use the pause facility on an SIP is when you're short on funds.

What happens to SIP in recession? ›

You set a standing instruction so that it happens automatically until you stop it, or all the installments are completed as per your plan. The advantage of the SIP route is that when the market is down (as during a recession) you will be able to purchase more units of the fund for the same amount of money.

Try not to panic about the scary headlines and remember that staying invested is almost always the best response. Historically speaking, investors who hold on to their investments through recessions see their portfolios completely recover, and individuals who don't invest in the market at all lose out.

Once the request is processed, the automatic payments will stop. However, the investments you made through the SIPs in the past will remain invested in the fund. If you are looking for an easy way how to stop SIP in mutual funds online, you can do it via your trading app instead.

Hence, you should continue your SIP if you are investing for the long term (more than seven to ten years) as you would benefit from buying units cheap.

Are there any disadvantages? SIP investments don't work in bullish markets or when market rises up over time.

Is SIP good for the long term? Yes. In fact, it is better to invest in SIP for the long term. Instead of waiting and accumulating money to invest, you start investing whatever amount you are able to save.

SIP interest rates for various mutual funds may vary. On an average, for large cap equities, a return of 12-18% can be expected whereas from mid-cap equities, a return of 14-17% is expected. However, in case of a long-term debt-based mutual fund, one can expect a return of 6 – 9 % p.a.

Calculation of SIP returns

To understand this, let us take an example. A monthly investment of Rs 5,000 for 10 years at an expected rate of return of 12 per cent will earn you Rs 11.61 lakh.

Request an SIP cancellation form from your AMC, CAMS or KFintech. Fill in the required details such as your folio number, PAN number, SIP scheme name, bank account details linked to the scheme, SIP amount and the date from which SIP is to be paused. Submit the paperwork at any branch of the AMC, CAMS or KFintech.

Any amount already invested in the fund will continue to remain invested. Canceling the SIP will only stop future installments. You may redeem the invested amount via your Mutual Funds dashboard.

Does SIP have an end date? ›

Perpetual SIPs do not have any end dates. If you want to stop a perpetual SIP, you would have to fill an SIP closure form and submit it to your Asset Management Company (AMC). When you opt for perpetual SIPs, you do not need to renew your SIPs now and then. You can invest as long as you wish.

You can get your ELSS SIP investments redeemed either by visiting your local mutual fund branch or by raising a redemption request online. If you visit your local mutual fund branch, you can fill up a form and raise the redemption request.

You simply have to log-on to the 'Online Transaction' page of the desired Mutual Fund and log-in using your Folio Number and/or the PAN, select the Scheme and the number of units (or the amount) you wish to redeem and confirm your transaction.

It is advisable to redeem funds only when the goal is achieved or the objective is accomplished. Any untimely or premature redemption can have an adverse impact on the value of the investment.

It enables the investor to accelerate the growth of their corpus. Investors may also beat inflation and earn higher returns on their growing investments with step-up SIP.

There is no specific date of the month that gives better SIP returns. So, your own convenience should be the only determining criterion. For example, if you are a salaried person and receive your monthly pay at the end of the month, then you can plan your SIP in the first week of the following month.

When the markets are in a slump, your entire corpus will be affected. So instead of a lump sum, an investor should consider investing through an STP (systematic transfer plan). In this, you invest your lump sum in a debt fund and it gets transferred to an equity fund in SIP mode.

Yes, you can invest in mutual funds via the SIP mode for 20 years. This may help you earn very long term returns as per the find performance.

Market volatility couple with low returns from equities have prompted investors to pull out money from SIPs. If you look at the data of over the previous 12 months, an average of over 9.2 lakh SIP accounts were added each month.

Is SIP good for long term? ›

One can save tax each year by investing in a SIP. For getting compounding benefits, it is important to hold investments for an extended period. Start investing at an early stage of life.