Can SIPs be withdrawn anytime?

Systematic investment plans are an easy way to invest in mutual funds. Here, instead of investing your corpus, you can invest in smaller instalments every month. Even an investment of Rs.500 per month can make you able to build a substantial corpus over a longer period.

This has made SIPs one of the most popular investment options for people in India, with SIPs managing to attract more and more people to mutual fund investments.

But even then, there exists a lot of confusion regarding SIPs. One of the most common concerns is the withdrawal rules. Let us try and answer some such queries, including those related to withdrawal.

What is a systematic investment plan?

Before we address the doubts, let us first understand what SIPs are.

  • SIPs are a plan that can help you invest in mutual funds and not a standalone investment option. When you invest through SIP, you invest in a mutual fund of your choice. Hence, researching and finding the apt mutual fund for you is also important.
  • SIPs are designed to make investing easier. This is especially useful for investors who don’t have a corpus amount to begin investing. But the goals of both these investment options may differ. For instance, when you invest in a corpus, you may be trying to protect or appreciate the corpus. But with SIP, your choice is to build a SIP with time.
  • Compounding is a factor that helps your investment grow faster. In investment terms, compounding is when the returns from your investment are reinvested so that the compounded corpus will start earning returns thereafter. For instance, if your investment of Rs.500 earns Rs.20 as returns at the end of the first day, on the second day, the whole corpus of Rs.520 and not Rs.500 will start earning returns.

Now that it is clear what SIPs are let us address some questions about their withdrawal rules.

Can you withdraw your SIPs anytime?

The answer to this depends on the type of mutual fund you have invested in. If you have invested in a mutual fund with a lock-in period, you will have to wait till the end of the same to withdraw. An example of this is ELSS. ELSS has a lock-in period of three years.

But when you are investing through a SIP, only the instalment that reached the lock-in period is redeemable.

For instance, suppose you invest Rs.5000 in a mutual fund every month, only the first month’s instalment is redeemable after three years of the start date. The next instalment becomes redeemable after a month here.

In case you have invested in a mutual fund that has no lock-in period, the same should be redeemable instantly. But one thing to understand here is that there may be an exit load applicable for certain mutual funds if you decide to divest before a certain period. This is usually a smaller percentage of the corpus you have made.

It is also possible for you to partially withdraw from a SIP. Here, you can select the amount you want to divest at the time of withdrawal.

But if you are planning to withdraw investment and completely stop investing in it, ensure you also stop the SIP payments and cancel the mandates that regulate auto payment.

Systematic investment plans make investing in mutual funds easy and flexible. The easier withdrawal rules add to this flexibility. But be sure to read the fine print to ensure the withdrawal rules and limits matches your investment goals.