Nov 27, 2024 03:35 PM IST
A SIP is a popular method of investing wherein a small pre-determined amount of money is invested at pre-determined time periods into venues like mutual funds
Not making timely payments towards your Systematic Investment Plans (SIPs) can negatively affect your financial health.
What is a Systematic Investment Plan (SIP)?
An SIP is a popular investing method wherein a small amount of money is invested in investment avenues such as mutual funds at predetermined recurring durations every month. This is done to ensure financial discipline and a steady growth of wealth over a longer term, with its advantage being almost anyone can start doing it with small amounts.
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What happens if you miss a SIP payment?
Not making timely SIP payments could lead to the following potential consequences, according to a Financial Express report:
Termination of your SIP
The mutual fund company won’t be able to withdraw the SIP amount from your bank account if the funds available are inadequate, leading to your SIP possibly getting terminated.
Possibility of penalties
This entirely depends on the terms and conditions of the mutual fund you invest in. Some may impose penalties or additional fees for delayed contributions, making it important to read and review the rules fully.
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Losing out on potential investment opportunities
Missing an SIP payment can sometimes mean a missed investment opportunity if the timing was such that the markets performed well during the period that followed the payment date.
Disruption of Rupee Cost Averaging
Rupee Cost Averaging is when an individual invests a fixed amount at regular intervals regardless of whether the market rises or falls, meaning the portfolio goes in the general direction of the market by averaging out rises and falls.
Missing a payment can disrupt the investment pattern and may affect your portfolio health.
Reduced Accumulation of Units
Missing a payment reduces the total units that can be accumulated over time in the portfolio. In the much longer run, this can lead to an overall smaller value of the portfolio.
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