Say, it’s Diwali time and you have expenses coming up, like gifts, travel, house decoration and so on. But you also have to honour your monthly systematic investment plans (SIP). What do you do? Some mutual fund houses allow you to temporarily pause your SIPs. This is not the same as stopping your SIPs. An SIP pause is temporary and you need to restart, but you can stop investing for a few months.

Break in investments

Not all fund houses allow you to pause your SIPs. But some such as ICICI Prudential Asset Management Ltd, Invesco India Asset Management Co. Ltd and Reliance Nippon Life Asset Management Co. Ltd allow you to pause your SIPs. Different fund houses have different conditions, but here’s what they would broadly be.

You can either write a letter or fill a form, if your fund house has one. You need to give sufficient notice to your fund house. Don’t give a letter today and expect your SIP to be paused from the next week. Ideally, give at least a month’s notice, but there is a good chance that your next SIP—that falls in this month’s notice periods—still goes through. The next one will be paused. This happens because every time you start an SIP, the mutual fund house typically registers a mandate with your bank, which enables the bank to debit your account on the SIP date. So, when you pause your SIP, the bank shouldn’t automatically take money out of your account and send to the fund house. This usually happens when your SIP gets registered under the ‘standing instruction’ SIP mandate.

The mutual fund house needs time to send the ‘pause’ mandate to the bank, which takes time. So give at least a month to the fund house to pause, and time your finances well.

There is another small, but important detail you need to remember. Some fund houses offer a top-up or step-up SIP facility. With this, you can choose to increase your SIP amount once a year by a fixed amount, every year. Say, you pause your SIP a few months before your amount is scheduled for a hike. When you re-start your SIP and if that month coincides with the top-up or step-up time, then your new SIP amount will be the higher amount, and not the amount which was there when you had paused earlier.

You can pause up to about 6 instalments or 5 months’ worth of monthly instalments, depending on what your mutual fund house allows.

Check how often you can pause your SIPs. ICICI Prudential AMC allows you to pause it only once in your SIP’s lifetime. This is a safety measure, otherwise some investors may pause their SIPs, repeatedly.

Can you stop your SIP?

Yes, that is simple. Just fill in an SIP stoppage form or write a letter and you can stop your SIPs. On the other hand, if your bank account doesn’t have enough funds and your SIP is still on, then the fund house may just stop after 3-5 months’ default. If you start an SIP, it’s always better to ensure that there are enough funds in your account to prevent unnecessary premature stoppages.

As far as possible, do not pause your SIPs. It’s a bad habit. It’s always better to build an emergency corpus to meet sudden expenses, so that your SIPs continue and your expenses don’t harm your investment commitments.

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