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SIP Tips: If you suddenly face financial crunch then pause or close SIP! Which option is better?

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SIP Pause Vs Close: If you want to make big money in the long term, then a Systematic Investment Plan (SIP) is considered to be the best way for this in today's time. Through SIP you invest money in market-linked scheme mutual funds. Experts believe that through mutual funds you can get an average return of 12 percent in the long run. Sometimes it is more than this. By getting the benefit of compounding, your investment turns into wealth faster.

But suppose after starting SIP, you suddenly face a financial crunch and you feel that you are not able to continue SIP, then in this situation, you have two options. One option is that you can pause your SIP and the other option is that you can get it closed. When should you choose which option? Know about it here-

What is SIP Pause?

By using this facility during a financial crisis, you can stop your scheme midway instead of stopping it completely. Earlier this facility was for 1 to 3 months, but now some fund houses have extended it to 6 months. To avail of this facility, you have to submit a request to 'pause' the Asset Management Company i.e. AMC. While placing the request, you have to check for how many days your company provides a pause facility. If the company approves your request, then the SIP installment will not be charged to you for a certain time. But after the 'pause' period is over, the SIP installment will automatically start getting deducted from your account. 

When to choose SIP Pause and when to close it?

You face a medical emergency, job loss, or a sudden big expense, or your financial responsibilities increase due to marriage, home purchase, or any other family-related event, and you feel that you are unable to continue your SIP installments right now. If you will not be able to keep it but can start it again after some time, then in such a situation you can choose the option of SIP Pause. But if the financial crisis is such that you have no idea when your circumstances will become normal, then only decide to stop SIP.

After closing the SIP midway, you have no hope of achieving your goal, but by pausing the SIP, you get relief from paying installments for a few days, and it does not affect your investment goal. If the market sentiments improve after the pause period, then you can also get full benefit from it. The best example of this was seen by people during the COVID-19 time. Due to the financial crisis at that time, many people took advantage of the Pause facility and later restarted it. When the market started recovering after Covid 19, they got tremendous benefits from it.

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