SIP: If you miss 3 consecutive installments, all your hard work will go waste..

Systematic Investment Plans (SIPs) are a popular investment method that allows even small investors to invest regularly in the stock market or mutual funds. It helps you leverage the power of compounding to build a large corpus over the long term. Most people start with a long-term goal because compounding benefits significantly over time and builds a large corpus.

However, you must ensure that you don't miss any installments. Imagine if you find yourself in a situation where you don't have enough money left in the bank for installments, and as a result, you miss a few installments in a row. Understand this so you can protect yourself from this loss.

SIPs may be cancelled.
Most asset management companies (AMCs) and banks have a rule that if you miss three consecutive SIP installments, they can cancel your SIP. This can impact your entire investment journey.

Reduced Returns and Loss of Compounding
The biggest advantage of SIPs is compounding. When you invest regularly, your money not only grows but also earns returns on that growth. When you miss installments, the compounding chain is broken, and you lose the opportunity to optimize rupee-cost averaging based on market movements. This impacts your returns. In this case, you may have to make larger investments in the future to reach your financial goals.

Bank Penalties and Charges
If you miss an SIP installment due to insufficient balance in your bank account, the bank may charge you a penalty for "insufficient funds." This penalty is charged every time an installment is missed and becomes an unwanted expense for you. Furthermore, if auto-debit fails repeatedly due to a lack of funds in the bank, the bank may view it as non-maintenance. This can also negatively impact your credit score.

How to avoid missing SIP installments?
1. Maintain a sufficient bank balance
Most importantly, always maintain a sufficient balance in the account from which your SIP installment is deducted. Make it a habit to check your bank balance a few days before your SIP date.

2. Set an automatic reminder
Set an automatic reminder for your SIP date on your phone or calendar. This will remind you that the amount is about to be deducted and help you maintain balance in your account.

3. Determine the SIP amount based on your income
Decide your SIP amount only after accurately estimating your income and expenses. Avoid keeping excessive amounts, which can lead to financial problems later.

4. Keep a Backup Account
If possible, keep a backup bank account for your SIP. Some banks or investment platforms allow you to link SIPs to multiple bank accounts.

5. Keep Reviewing Your Financial Situation
Review your financial situation periodically. If your income changes, adjust your SIP amount accordingly. You can increase or decrease it.

6. Skip or Pause Facility
If you feel that your financial situation will remain unstable for some time and you will face difficulty in paying your SIP installments, you can take advantage of the SIP Pause feature. This allows you to pause your SIP for up to 6 months and then resume it. Using this feature does not stop the SIP.

What to do if you miss an installment?
Contact the Fund House
If you've missed a SIP installment for some reason, don't panic. Contact your asset management company (AMC) or the distributor from whom you took the SIP. Find out if there's a way to manually deposit the missed installment. In some cases, they may allow you to do so. If your SIP is about to be cancelled, the fund house may offer you this option.

Adjust the SIP Amount
If you feel your current SIP amount is too high for you, you can consider reducing it. Remember, a lower SIP is better than no SIP at all.

Be Prepared for the Next Instalment
Ensure you have sufficient balance in your bank account on the next installment date to ensure the auto-debit works properly. To do this, check your account balance two days before the installment date to eliminate any potential errors.

How to Recover Missed Installments
Make a Lump Sum Investment: You can deposit the missed amount all at once to continue compounding.
Top-Up SIP: Increase your investment amount slightly for the next few months.
Rebalance: Create a new strategy based on your financial goals.

Disclaimer: This content has been sourced and edited from Zee Business. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.