What is SIP Pause Facility?
Retail investors have continued with their investments in mutual funds through Systematic Investment Plans (SIPs) with monthly SIP inflows in March 2020, hitting an all-time high of more than Rs. 8,600 crores.
Source - AMFI
However, with the ongoing volatility coupled with the impact on the regular income and cash flows, many investors are considering discontinuation of their SIPs.
In such a time, the investors have two options before them:
Discontinuing their SIP
Pausing their SIP
While both options have the same impact on the immediate cash flows, the difference lies in the process, which sets the investor back on the investment journey. While the finances may get back to normal after some time, one may also skip registering a fresh SIP considering the busy schedules or just due to oversight.
This is where a SIP pause helps. While SIP discontinuation stops the mutual fund SIP completely, the SIP pause facility is an option granted by the mutual fund houses to discontinue the SIPs temporarily for a specified period, and the SIP restarts after that period automatically. As such, the investor need not go through the entire registration process again after the expiry of the specified period. This enables the investors to continue saving for their financial goals, albeit after a small break.
How to Pause SIP online?
The steps to pause the SIP online are as below:
Logging on to Investor Account – The investor must log in to the investor account through the website of the mutual fund house. Once the investor logs in, he/ she gets access to several options to manage the investment account, including making a new transaction, switching the investments from one mutual fund to another, initiating SIP, etc.
SIP Transactions – The investor must browse through the SIP transactions, wherein the details of existing active SIPs are mentioned, which may include the name of the scheme, investment date, frequency of investment, next instalment date, SIP frequency, etc. An option to modify or cancel the existing SIPs is available on the same page.
Selecting SIP Pause – One may pause the SIP by changing the SIP details on the portal itself. If the ‘Pause SIP’ option is selected, the number of instalments for which the SIP is intended to be stopped must be specified. For a SIP having monthly frequency, the SIP may be paused for minimum one month and maximum six month, & for SIP with quarterly frequency SIP may be paused for minimum one quarter and maximum two quarters. SIP Pause option may be opted 2 times during the entire life span of a SIP mandate. The SIP will automatically start on expiry of SIP pause period.
While SIP discontinuation may call for the derailment of financial plans due to no further savings, a SIP pause facility will only be seen as a temporary halt in the investment journey.
Moving towards Financial Goals
Restarting the SIP after the expiry of the specified period allows the investors to continue their investing journey and continue saving towards their financial goals. This also adds a sense of financial discipline into their lives through consistent savings.
Rupee Cost Averaging
SIP investments help the investors by passing on the benefit of rupee cost averaging. This is because the investments continue to be made across market ups and downs. So, while the investors benefit from allotment of a higher number of units during market corrections, they benefit from an increase in overall portfolio valuations when the markets rebound.
Reigning the Emotional Bias
SIPs have been designed to eliminate emotional bias in the investing journey. At the same time, SIP pause facility helps the investors to mitigate the emotional bias in restarting the SIP. The automation of the investment process assumes importance as the investors may not be sufficiently motivated at a later date to register a fresh SIP again if the SIP has been discontinued earlier.
While it is never advisable even to pause the SIPs in normal circumstances, it might be a prudent option to pause the SIPs temporarily in the currently prevailing exceptional circumstances to cushion their finances. However, the pause may not be allowed to be continued for long, and one must intend to resume their SIP investments with a brief halt. Stay safe.