If You Invest via SIP, Keep These Points in Mind! Otherwise, You Might End Up Regretting Your Losses

Investment Mistake: If a SIP installment fails, investors may face heavy penalties and have to pay an additional 18% GST. Repeated errors can also have a negative impact on investment returns.

SIP Mistake: Thanks to increasing financial awareness among the public and easier access to technology, investors today are gravitating toward a variety of investment options. The Systematic Investment Plan (SIP) is one such popular avenue. If you, too, invest via SIP, you must avoid a specific mistake that could result in significant financial losses.

Various types of charges are levied under a SIP, and it is essential that you are aware of them. One such charge is the fee imposed when a SIP installment fails. Let’s explore how this seemingly minor oversight can impact your wealth.

The Impact of a Failed SIP Installment

If a SIP installment fails to be debited from the bank account on time, investors face direct financial losses. Specifically, in SIPs processed through the NACH (National Automated Clearing House) system, if the account balance is insufficient and the auto-debit transaction fails, the bank levies a penalty.

Banks typically charge a penalty ranging from ₹250 to ₹750 for every failed transaction. Additionally, an 18% GST is levied on this penalty amount. If this occurs repeatedly, investors incur additional costs, and their long-term investment returns are also adversely affected.

Avoid These Minor Mistakes

Many people overlook the fact that charges associated with SIPs are applied on a per-transaction basis, rather than as a single lump sum. Consequently, if multiple SIP installments fail on the same date, a separate penalty is applied to each individual transaction. This can result in the total charges levied against you becoming exorbitantly high. Furthermore, if such failures occur frequently, it may lead to complications in the future processing of your SIPs.

How ​​the System Works

In India, the SIP process is typically facilitated through the NACH system, which is managed by the National Payments Corporation of India (NPCI). Under this mechanism, Asset Management Companies (AMCs) are authorized to directly debit SIP installments from an investor’s bank account on pre-determined dates. If there are insufficient funds in the bank account, the bank levies a penalty. Therefore, investors are advised to ensure that they maintain adequate funds in their bank accounts prior to the scheduled time.