Should you stop your SIP or pause it temporarily? Which option is the right one amid a financial crisis?

Mutual fund SIPs (Systematic Investment Plans) have become a popular investment option these days. You invest a fixed amount every month at a fixed time. But life isn't always the same. If a medical emergency suddenly arises, you lose your job, or a major expense arises, the first thing that comes to mind is what to do with your SIP. At such times, you have two major options: pausing your SIP or stopping it altogether. The question now is which step is more prudent in times of financial constraints.

Understand what a SIP Pause is?

SIP Pause means you can pause your SIP installments for a period of time. Most Asset Management Companies (Asset Management Companies) allow you to pause your SIP for a period of one to six months. During this period, your installments will not be deducted from your bank account, but your investment will not stop. As soon as the pause period ends, your SIP will resume.

Advantages
You get time to manage your cash flow.
Investments continue, and long-term returns are not significantly impacted.
SIP discipline is maintained.
Disadvantages
Stopping investments during the pause period reduces the effect of compounding.
A prolonged pause may delay reaching your target.

What is a SIP closure?

Closing a SIP means permanently closing your SIP. This will stop automatic deductions from your account. You can restart your SIP in the future, but you will need to register separately for a new SIP.

Advantages
If you are going to be short of money for a long time, it provides relief.
Your bank account is not burdened.
Disadvantages
Long-term goals (such as retirement, children's education) may be significantly hindered.
The full benefit of compounding is lost.
Starting a new SIP may lose the benefits of the previous NAV and price.

Pause vs. Close: Which is better?
Short-term problems (1-6 months) – Such as salary delays, medical expenses, or unexpected EMI burdens. In such situations, pausing your SIP is the best option.
Long-term problems (more than 1 year) – If you believe your income will be affected for a long time, it's wise to close your SIP.
Experts recommend closing your SIP only if there's no other option. Otherwise, pausing is best.

Advice for investors
Always maintain an emergency fund so you don't have to stop your SIP.
Give SIP pausing a priority.
If you must stop your SIP, make a plan to restart it.
Be sure to consult a financial advisor.

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