Missed Mutual Fund SIP dues? You may lose out on potential market gains

Mutual Fund SIP: While SIPs offer numerous advantages, failing to pay their dues on time can have serious implications for an investor's financial well-being.

Written by Sanjeev Sinha

July 7, 2023 01:30 IST

An SIP is an investment method where investors regularly invest a fixed amount of money at predefined intervals into mutual funds.

Systematic investment plans (SIPs) have gained significant traction among investors seeking a disciplined approach to wealth creation. While SIPs offer numerous advantages, failing to pay the dues on time can have serious implication for an investor’s financial well-being.

SIPs thrive on the power of compounding, which is substantially hindered when payments are delayed. By falling behind on payments, investors miss out on the opportunity to capitalise on market movements and take advantage of favourable investment conditions.

Your SIP may get cancelled

The mutual fund house will not deduct the amount from your bank account if there are insufficient funds. As a result, your SIP may get cancelled and you funds may not grow as per your expectations.

Missed Investment Opportunity

When you miss your SIP payment, the scheduled investment for that particular period is missed. As a result, you lose the opportunity to invest at the desired time, potentially missing out on any potential gains or favourable market conditions that could have benefited your investment.

Adhil Shetty, CEO, Bankbazaar.com, says, “A systematic investment plan (SIP) means repeating small steps hundreds of times over the long term, breaking down a tough investment goal into small, achievable monthly goals. Failing to pay your SIP means your financial goals which you want to achieve through your investment may hamper and affect your wealth-creation plans.”

Rupee cost averaging disrupted

SIPs are designed to benefit from rupee cost averaging, where you accumulate units of mutual funds at different prices over time. By missing a payment, the regular investment pattern is disrupted, affecting the averaging effect. This may lead to a deviation from the intended investment strategy and impact your returns.

Shetty explains, “Consistently paying your SIP has several advantages. Firstly, an SIP allows you to buy your chosen investment instrument at various price points. You buy regardless of the market position because you have determined this instrument to be the best choice for your goal. This not only reduces price risks, it also gives you better rupee-cost average.”

Lower accumulation of units

With missed payments, the total number of units accumulated in your mutual fund portfolio will be lower. Over time, this can impact the overall value of your investment as the number of units you hold determines your share in the fund’s performance. Some mutual funds may have specific terms and conditions regarding late payments or non-payment of SIP installments. There might be penalties or additional charges imposed for delayed payments. It is important to review the terms and conditions of your SIP and consult with the mutual fund company to understand the consequences of delayed payments.

Disrupt financial discipline

Regular investing through SIP helps develop a disciplined approach to investment. Failing to pay on time can disrupt this disciplined approach and make it easier to deviate from your investment goals. Consistency and discipline are crucial for long-term wealth creation.

It is advisable to keep paying your SIP installments on time to maximise the benefits of rupee cost averaging and ensure consistent progress towards your investment objectives. If you anticipate any difficulties in making timely payments, it is recommended to communicate with your mutual fund company to explore possible solutions or alternatives.