Is tough financial situation not letting you continue your systematic investment (SIP) in mutual funds? Then press the 'pause' button for the time being to meet your other unavoidable expenses.
Wondering? Yes, it's true. India's third largest fund house ICICI Prudential Mutual Fund has recently brought 'SIP Pause' feature to its investors on all monthly SIPs which facilitates to pause existing plan for one to three months.
The facility, which can be availed only once during the tenure of the existing SIP, comes with no costs and investors would not be penalised by their respective banks during the pause duration. Currently, banks through which payments are made either by electronic clearing services (ECS) or post-dated cheques charge customers a sum of Rs 100 for dishonouring the scheduled payment.
Aashish Somaiyaa, senior vice president & head - retail business, says, "Customers opt for SIP cancellation in tough times either for personal reasons or to meet other emergency. In such situation, we run the risk of losing clients. With SIP Pause, our endeavor is to tell them not to stop but pause their investments for a temporary period." Once the pause period is over, SIP restarts automatically.
Pause cannot be availed online. A physical form needs to be filled and submitted at the nearest branch of the fund house.
The initiative has come at a time when mutual fund industry continues to lose its investors' base and cancellations of SIP is rampant across the sector. On top of it, persistent high inflation amid salary rises is squeezing customers' budget.
Dhruva Chatterji, senior research analyst at Morningstar India, says, "It's a flexible feature but shows the pressure on the industry to retain customers." Over the last three years, fund industry has lost over 4 million retail folios in the equity segment alone.
"Such a feature brings comfort to investors which essentially conveys that instead of stopping investment, pause it for sometime," says, Ajit Menon, executive vice president, DSP Black Rock MF. For investors' convenience, the fund house has added a feature which allows investors to redeem through a mobile text message.
SIP Pause is a new feature for the Indian fund houses and barring ICICI MF, no one has yet introduced it. However, industry's officials say that they offer this flexibility to investors. "These are all internal processes and we do try to retain our investors when they approach us after not payment failures. Who does not want to keep its client base intact?," asks CEO of mid-sized fund house. According to him, industry does it without officially declaring it but in ICICI case they made it known which is a welcome step.
Currently, if investors fail to honour their payment committment for three months in a row, the folio is considered to be a cancelled one. "But, we cannot keep investors' wealth. If they want to restart, we do retain our customers," explains a sales head of another fund house. However, during these non-payment months, banks continue to slap penalty on investors.