SIP is a tool which helps investors actualize their big goals through small steps. You can achieve a big dream like meeting your daughter's wedding expenses, with an SIP of as small as Rs 2,000 a month. Power of Compounding and Rupee Cost Averaging are the key highlights of an SIP, which adds a few more stars on its shoulder and makes SIP the most favoured way of investing.

Despite the goodness and the unique features, many people still do not prefer investing through an SIP. They are skeptical, “What if I can't afford to continue my SIP after some time or if for some reason I miss my SIP installment”. For this uncertainty, many investors stay away from SIP.

If you too have similar thoughts, then this article is intended to clear your doubts and help you overcome the fear.

What will happen when you do not have enough money in your account on the date of the installment, and you miss the installment?

Many investors think that on missing an installment, their SIP will be cancelled. However, that is not the case. If you have missed it, your investment amount will be less than one SIP amount, that's about it. The Mutual Fund house will not cancel your SIP, nor will it impose any penalty for not paying an installment. For the simple fact, it is your investment, it is not your loan EMI, so you don't owe anyone when you invest. But your bank may levy a penalty for ECS default, and the amount of the penalty is different from bank to bank.

Here you must note, that if in case you miss three consecutive SIP's, then the mutual fund will stop sending any further ECS mandates to your bank, and will stop your SIP.

Wondering what will happen to the SIP installments you paid for, before the SIP stops?

Your investment will remain intact. The amount collected through SIP's will remain invested in the MF.

So, if you have an SIP of Rs 2,000 a month and you have paid 15 installments and then missed three SIPs in a row. This means your total investment in the MF is Rs 30,000. Nothing will be deducted from your account, this 30,000 will remain invested in the Mutual Fund and will keep growing with the fund, until you opt to withdraw your investment.

You can avoid the bank charges on missed SIP installments as well. If you can foresee that you might not be able to pay for your SIP for some time because of a financial crunch, then you can opt for the Pause SIP facility, which is offered by some Mutual Fund Schemes. In this facility, you can pause the SIP for a specific period like 6 months, and after 6 months, the SIP will automatically start. If you feel, you need a longer break, then you may stop the SIP and restart as per your convenience.

So, it's pretty easy to stop and resume SIP's anytime. At times, it may happen that you forget your SIP date and you fall short of the minimum balance to be maintained for your SIP, so it won't be a big deal and you can resume as usual from the next month onwards. But then, if you miss SIP installments, you must remember that each miss is dragging you one step away from your goal. Moreover, missing too many SIP's will also hamper averaging of costs.

To avoid missing SIP's due to insufficient bank balance, it's best you register your phone number and e-mail id with the fund, so you'll get an alert from the MF a few days before the SIP date. You'll get another message updating you with the status of the SIP transaction as to whether it was successful or not.

If you do miss one or some of your installments, then ideally you should make up for it by investing the amount of the missed SIP's in the same scheme in the near future. This will ensure that you are never falling behind in the pursuit of achieving your goals.

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“It's July already, I am in the midst of the year. I'd rather start investing from the next year. New Year, New Beginnings”

That auspicious new year will never come

“I am young in my career, I am earning Rs 20,000 a month, which is just enough to meet my expenses. I'll start investing when I start earning at least Rs 30,000 a month”.

And then you'll say the same thing to yourself when you reach the 30,000 mark.

“This year, I am planning for a vacation to Dubai, so I need to spare some money for that. I will start from next year.”

Vacations will come and go, your Investments will stand by you in all facets of your life.

“I am waiting for the right time to invest, like when I'll have some extra money”

Money can never be extra, you have to carve out for your investment from the money you have.

“The markets are high, Investing now will be a costly affair”

No one can predict the direction of the markets, it may never come back.

These are the excuses you give to yourself and to others. You should get over the lazy attitude and start investing now. Because the cost you'll pay for delaying investment can be very high.

Why do we say, you shouldn't delay investing? Why should you start investing in the early stages of your life?

What are you losing?

Power of Compounding: Ramesh and Suresh are two friends, both of them are 25 years old and working in the same company. Ramesh is a smart guy, he decides to start an SIP of Rs 5,000 for 10 years. While Suresh picks up two of the above mentioned excuses and he procrastinates his investing. Now Suresh realizes the need to invest after 5 years and he too starts an SIP of Rs 5,000 a month in the same mutual fund as Ramesh's.

Their Investment comparison is as follows:

* Assuming a CAGR of 20% for the overall investment period

Conclusion: Suresh, who started investing 5 years after Ramesh, invested Rs 3 Lacs less than the latter but the difference in their investment's maturity value is huge i.e., Rs 12,28,035. This huge difference is because of the Power of Compounding, which has taken Ramesh many steps ahead of Suresh in just 5 years. This huge difference has resulted when the SIP was of just Rs 5,000 a month and the difference in duration was 5 years. So, imagine the cost you are bearing by procrastinating your Investing for decades now.

Failure to meet goals: When you delay investing, you are dragging yourself away from your life goals. It may not be easy to collect a huge corpus in a very short period of time. Consider the above example, Ramesh has Rs 17.21 lakhs at the age of 35, so he can use this money for making a downpayment for his dream home. But Suresh, who is also 35, may not be able to do this with Rs 4.93 Lakhs. So procrastinating his Investment has taken him away from fulfilling his goal of owning a house, he will need some more years for accumulating the money required for making the downpayment.

Tax Benefits: Many investments carry the dual benefit of Yielding Returns plus Saving Taxes. So, if you are the one who has not yet started investing for saving taxes also, then you are practically committing a financial crime. Let's say, Harish falls under the 20% tax bracket, but he is too lazy to invest for tax. He shakes off the load from his shoulders by explaining to himself that “I live in India, I am paying taxes, because it's my responsibility to contribute towards the economic development of the country”. He omits to tell his conscience that he is also paying VAT on everything he consumes, he pays road tax to drive on the roads, he pays water tax to drink water, he pays service tax on the movies he watches, etc., and all these taxes are also contributing towards the economic development of the country. Hence he must save paying Income Tax as much as he can. If Harish would have invested in a tax saving instrument, like PPF, which is giving a nominal return of 8%, his effective return is 8% plus the 20% tax he is saving, i.e. a cumulative return of 28%. (For simplicity sake, we have ignored the time value of money). It doesn't make sense to lose out a return of 28% p.a. just because Harish is procrastinating investing. We have taken the example of PPF, if we replace it by a high return generating option like ELSS, then your money would know no bounds.

These were the three basic costs you are paying by procrastinating your Investments, there are many more that you actually bearing. The excuses are endless, but the time is not. So, stop procrastinating and Start Investing Now.

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This was during the year 2009 - 2010. Mr. Shankar, Amit's father retired few weeks back and he was enjoying his retired life. After retirement he got a hefty sum from his savings as PPF & Gratuity. One day, Amit & his father, Shankar was having a conversation -

Amit - Dad, I am very happy to see you enjoying your retired life. But I wonder if you could tell me about your savings. What have you done with it?

Shankar - Hey Champ, I have kept this money in three different banks as Fixed Deposit for 3 years. I would be getting average 10% interest per annum which would suffice mine and your mother's expenses.

Amit - Ohh.. that's great.. Good plan Dad..

As per plan, every month's income was sufficient though the bank was deducting the Tax (TDS) on the interest offered. But Shankar was comfortable as this amount was enough to fulfil the monthly expenses. Days, weeks, months and years passed and in the year 2013, Shankar received a call from the bank. The banker told him that the Fixed Deposit that he has made would be matured next week. He also requested Mr. Shankar to come to a bank and renew the instrument. Shankar immediately visited bank where he learnt two things -

• Due to every month withdrawal, his base amount has not appreciated. It was the same amount which he had invested.
• Earlier the interest rate was 10 % but now the interest rate would be 9.00%

Shankar was bit worried when he understood that the amount that he will be getting every month will be less than the amount which he was getting earlier. But he had no option as he was not ready to take risk on the only savings that he had. So he decided to renew the Fixed Deposit for another 5 years. That day evening, while having dinner, he shared this with Amit -

Shankar - Amit, I visited a bank to renew my Fixed Deposits.

Amit - So, What happened?

Shankar – But I am nervous as the interest rates have gone down. I will be getting only 9% interest on my investment. This amount will be on the border line of my requirements. So at times you may will have to support me financially.

Amit – Don't worry Dad… Surely..

Now Shankar had to spend money very carefully as the income from interest on FD was as same as to his expenses. Days.. weeks.. months.. Time was flying at its own pace…. And the day came (2016) when Shankar received another call from the Bank to renew his FD. But this time the interest rate was only 7.75 %. This was a very bad news for Shankar. Now he had no option but either to depend on his son for few of his day to day life expenses or work somewhere again. For whole of his life he worked very hard but that didn't help him to live happy retired life.

Dear Friend, The jist of the story is, FD interest rates are coming down and on the other hand inflation is rising. If we keep our money in FD, then after few years, value of our money will depreciate and the gap between our expenses and our income will be widened.

If we wish to secure our retired life, we have one solution and i.e. "BALANCE FUND". Now if we compare FD and Balance Fund, surely there is a minimal risk in Balance Fund but we look at the average returns for the last few years, this risk is nullified. If we keep our money in FD and use interest for expenses, our Capital does not appreciate, but if we invest the same amount in Balance Fund and if we opt for SWP (Systematic Withdrawal Plan), then we get fix monthly income as well as our capital also appreciate over a period of time. This happens because some portion of your fund is invested in Equity Markets and some portion in Debt Market. Another advantage of investing in Balance fund is the monthly income which I get is totally Tax Free. All Mutual Fund AMCs have various Balance Fund schemes. So you need to consult an experienced financial advisor to select a right balance fund from the exhaustive list of schemes. You need to change the mindset as per time and situation. Think Different and be Smart.

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