Systematic investment plan is a popular mode of investment in mutual funds, but to keep it going, investors need to make sure that payment to it does not fail.
Any two missing instalments of a systematic investment plan (SIP) in a mutual fund will now result in the cancellation of the SIP, effective from April 1, 2024. This is in accordance with a circular by the Securities and Exchange Board of India (Sebi) dated January 3, 2024, which mentioned the number of failed electronic clearing services (ECS) for different SIP frequencies.
While SIP is considered a flexible and secure way to take exposure into equity and other mutual funds, consecutive failed payments will now be considered as a parameter for cancelling the respective SIP.
SIP can be booked for varied frequencies, starting from daily to yearly. Here are the failed payment rules based on the frequency of cancelling the registration of SIPs.
Daily, Weekly, Fortnightly, And Monthly SIP: According to the Sebi circular, the particular SIP registration will be cancelled if the payment fails for three consecutive times, where the SIP payment frequency is daily, weekly, fortnightly, or monthly.
Quarterly, Half-Yearly, And Yearly SIP: In case the frequency is longer, such as quarterly, half-yearly, or yearly, the criteria to cancel SIP registration is fixed at ‘two consecutive failed payments’ instead of three failed payments like the shorter frequency SIPs.
The asset management company (AMC) or the registrar and transfer agents (RTA) shall “send a communication to investor after the first failed debit attempt, mentioning that the SIP will cease in case of three consecutive rejections and another communication after cancellation of SIP intimating the cancellation to the investor”, the circular said.
These changes are effective beginning this month (April 1, 2024) to all SIP investments.
For the already running SIPs, any failure in payment before this date will be considered as per the now effective rule and cancellation will be exercised accordingly. For instance, if a payment has failed before April 1, 2024, there will only be two or one debit attempt left for up to a month SIP and longer frequency SIPs, respectively.
According to the latest information, seven fund houses have confirmed the rule’s implementation. These rules are for auto-cancellation of SIP investment for failed payment of the instalment.
On the other hand, if an investor wants to cancel the SIP, the request needs to be submitted to the respective AMC, and the AMC is required to cancel the SIP ‘within 10 calendar days’ from the date of request submission.
An investor can refer to the scheme information document (SID), key information memorandum (KIM), or SIP cancellation form of the scheme for this detail. In short, if you have one or more SIPs running, make sure to keep the bank account from which you have given ECS mandate for SIP payment, active, and also maintain a sufficient balance on the date of ECS debit to enjoy continued investment.