Missed SIPs due to insufficient balance? Here’s how to avoid it in future

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Why missing SIPs can harm your investments

Systematic Investment Plans, or SIPs, are the most disciplined way of generating wealth through mutual funds. Missed SIP due to insufficient balance makes the investor miss the compounding advantage and regular investing. Missed SIPs also lead to failed bank mandates or even SIP cancellation by the fund house, which affects long-term financial goals.

Most frequent causes of failed SIPs

The most common cause of failed SIPs is a mismatch between SIP debit date and salary credit date. Investors also tend to forget to have the minimum balance in their account prior to the SIP date. Technical errors in bank mandates or bank account changes are also causes.

How to make sure SIPs are never missed

The easiest way is to align the SIP date with the date of salary credit. In case the salary is credited on the 1st or the 5th of the month, choosing an SIP date around the 7th or the 10th provides a reasonable balance. Another suitable solution is to have an investment bank account in addition to the regular account. Fixed amount deposit to the account each month ensures timely SIPs.

Setting standing instructions or auto-debit is also a smart idea. Automatic transfer from the salary account to an investment account is permitted by most banks a few days post-credit of salary. This does not require manual intervention. Flexi-SIP is also available with some fund houses, where the investor can change or lower the monthly investment amount. This facility provides flexibility and avoids total failure of an instalment.

It is also required to verify bank mandates from time to time. In case a mandate is low-limit or inactive, it will result in SIP failures. If a bank account is changed, the mandate has to be updated immediately.

Additional tips to stay on track

Maintaining a buffer amount in the account, preferably of one month's SIP value, minimizes the risk of failure. Confirmation of the account balance one or two days prior to the SIP date ensures money availability. Temporary halt in SIP in the event of a cash crunch is preferable to its failure. Through prudent planning of funds and utilization of facilities such as auto-debit and individual investment accounts, investors can maintain their SIPs and enhance their long-term wealth generation in a systematic manner.

FAQs

Q1. What happens if I miss an SIP due to low balance?

You won't be charged for the SIP for the month, and you won't receive that month's investment. The subsequent SIPs will continue as usual except if there is a series of failures leading to the mandate being terminated.

Q2. Will missing SIP hurt my credit score?

No, skipping an SIP does not affect credit scores since it is not an EMI of a loan. But frequent skips can lead to the termination of the SIP.

Q3. Can I re-initiate the SIP if it is dropped?

Yes, a fresh SIP can be initiated at any point in time by investing a fresh mandate through the distributor or fund house.