Mutual Fund Penalty: Meaning, Consequences and How to Avoid It?

A systematic Investing Plan (SIP) is a feature offered by mutual funds so that you can invest systematically over a period of time. Through SIP, you can invest a certain amount every month. This amount is directly auto-debited from your bank on a specific date chosen by you. But what happens when there is not enough balance in your account? Read to find out the consequences of missing a SIP installment and how to escape a mutual fund penalty.

Consequences of missing a SIP

If you don’t maintain sufficient balance in your account on the date of the SIP, you will miss an instalment. Following are the consequences of missing a SIP.

• Can’t fulfill goals on time: By investing a certain amount every month, you are accumulating wealth in the long term to fulfill your goals. But if you miss an installment, you are extending the target date of your goal by some time. So, every time you miss your SIP installment, you push the date further and won’t be able to fulfill your goals on time.
• Pay a penalty: When you set up a SIP, you authorize the Electronic Clearance Service (ECS) and National Automated Clearing House (NACH) with the bank to auto-debit a certain amount on a specific date. Every month on the day of the SIP installment, the Asset Management Company (AMC) sends a request to the bank, and the bank, on your behalf, pays the SIP installment from your account. If you don’t have enough balance, the bank rejects the request from the AMC. The AMC doesn’t charge any penalty for a missed SIP, but the bank does. YourYour bank charges a penalty in the range of Rs 250-750 for every missed SIP for not maintaining sufficient balance in the account.
• Cancellation of SIP: If you miss three consecutive SIP installments, then the AMC will automatically cancel your SIP. The existing investments will not be disturbed and will keep earning returns for you, but no additional investment will go through from your account. In case you want to restart the SIP, then you will have to start over the entire SIP process and set up an auto-debit again.

How to avoid penalties on SIP?

It is possible to avoid penalties on SIP by simply maintaining the minimum balance in your account. Make sure you maintain the required balance in your account on the date of SIP. You can set up the SIP date a day or two after you receive your paycheque, so you never miss the SIP instalment.

Alternatively, you can pause the SIP if you don’t have the required balance. All AMCs and mutual fund platforms have the facility to pause your SIP. This way, the AMC will not send a request to the bank on the date of SIP, and you don’t have to worry about the penalty if you don’t have enough balance. You can restart the SIP whenever you want without any hassle.

But what if you forget to restart your SIP or don’t receive your salary on time? You are missing out on your investments, and you end up paying the penalty for your missed installments. Investing is supposed to be simple and hassle-free, and not filled with penalties. Hence, we at Jupiter money introduced no penalty SIP.

What is no penalty SIP?

No penalty SIP is a feature introduced by Jupiter Money, where you don’t have to pay the penalty for your skipped SIPs. Jupiter Money automatically skips the SIP in case the balance is low in your account. All you have to do is set up a SIP with Jupiter, which will handle your investments.

Other benefits of investing in mutual funds with Jupiter

• Investing made simple: You can invest in mutual funds with Jupiter Money in a matter of seconds. You can invest, cancel, pause, and skip SIP installments with a single swipe. All you have to do is download the app and register yourself.
• Zero commission fees: You can cut your expenses by 1.5% per annum by investing in direct mutual funds through Jupiter Money. We charge zero commission fees which translate into higher returns for you.
• Over 1000+ direct funds: We offer over 1000 direct mutual funds. We have funds for every investment objective for you to invest in. You can make your own portfolio of top-performing funds or pick from curated collections based on your goals.
• Same-day NAV: Invest in mutual funds before 2 pm to get the same net asset value (NAV) you see on your Jupiter app.

Frequently Asked Questions

Is there any penalty for not paying SIP?

Yes, there is a penalty for skipping your SIP. In case there is no sufficient balance in your account on the day of investment, then your investment won’t go through. Additionally, banks charge a penalty of Rs 250-750 for every missed SIP.

Can I exit SIP anytime?

Yes, you can redeem your SIP investment any time you want. However, it is best if you stay invested in the fund until you reach your goal. But, if the fund is underperforming, or you require money urgently, then you can redeem your mutual fund investment and get the money within 3-4 working days.

What is the penalty if SIP bounces?

The fund house doesn’t charge a penalty if the SIP bounces. However, your bank charges a penalty of Rs 250-750 if you miss your SIP instalment due to insufficient balance.

How many SIPs can I skip?

If you skip a SIP due to insufficient balance, you can miss at most three consecutive SIPs. If you skip the fourth SIP, then your SIP will be canceled. But if you pause your SIP, you can restart it whenever you want.