The Securities and Exchange Board of India (SEBI) has announced major changes to benefit mutual fund investors.
Under the new rules, investors can now cancel their Systematic Investment Plan (SIP) or stop an installment just three days before the payment date.
Mutual fund companies are required to complete this cancellation process within two working days (T+2) after receiving the request.
These changes aim to help investors manage their finances better and avoid penalties. The new rule is already in effect.
Challenges with the Old Process
Previously, investors had to submit their SIP cancellation request at least 10 working days before the due date.
This long notice period made it difficult for investors to accurately estimate their bank balance, often resulting in bounced installments. Such situations led to extra charges, such as ECS or mandate return fees.
To address these challenges, SEBI simplified the process for both online and offline SIPs. The new system is designed to make the process quicker, easier, and more investor-friendly.
How the New Process Works
For example, if an investor’s SIP installment is scheduled for the 10th of the month
and they don’t have enough funds in their account by the 7th, they can now request cancellation on the 7th.
The mutual fund company must then process this request and stop the SIP before the 10th, ensuring no penalties are applied.
Key Guidelines for Mutual Fund Companies
1) Cancel auto-debit or ECS instructions within two working days.
2) Notify investors when they miss their first SIP installment.
3) Automatically cancel the SIP if three consecutive installments are missed.
4) Send a confirmation message to the investor once the SIP is canceled.
5) Ensure that SIP cancellation options are available across all platforms.
Benefits for Investors
SEBI’s decision is a significant step toward transparency and investor empowerment in the mutual fund sector.
This change gives investors more control over their finances and investments. Experts believe it will simplify financial planning and reduce the fear of penalties for SIP investors.
Common Reasons for SIP Cancellation
1) Insufficient funds.
2) Poor fund performance.
3) Service quality issues.
4) Interest in a different investment scheme.
5) Changes in the fund manager.
