Does SIP bounce affect your CIBIL Score?

Systematic Investment Plan or SIP has become a popular route of investing in mutual funds. Investors pour over 1 billion dollars (over Rs. 8,000 crores) in mutual funds every month through the SIP route! In SIP, a fixed amount is debited from your bank account on a fixed date every month. SIP is basically a convenient service for you where you don't need to do a manual transaction every month, thus automating the task of investing. Your only responsibility is to maintain the balance before the SIP date so that the money gets debited and you are allotted mutual fund units.

However, there are times when you may be feeling a liquidity crunch and hence may not be able to arrange money for the upcoming SIP. Also, you may just forget to maintain sufficient balance in the account and not realize the same until you get the reversal message from the mutual fund company. Under such circumstances, the SIP will get reversed due to insufficient balance! A lot of investors don't have an idea if SIP bounce affects their CIBIL score. With the post today we will answer this common query and will also tell you about other charges that you may be charged for SIP reversal.


Affect on CIBIL

To answer this question let us first understand what CIBIL score means. CIBIL score is a three-digit number that measures your creditworthiness. CIBIL score is the most widely used metric that is considered by the lending institutions like banks while giving you a loan. A strong CIBIL crore is a prerequisite for taking a loan. CIBIL score takes into account the repayment of loans as one of the prime factors. If the person who has taken a loan misses the EMI then CIBIL gets impacted. The loan can be a home loan, a personal loan, or any other type of loan. Even credit card outstanding is a loan and not servicing the same on time affects your CIBIL.

SIP isn't a loan, rather a convenient service for you to invest money on a periodic basis. Thus missing your SIP due to insufficient balance isn't reported to CIBIL and has NO AFFECT on your CIBIL score.

Relieved? But wait. While an SIP bounce may not affect your CIBIL there can be some charges that are applied by your bank (ECS bounce charges) and can go as high as Rs. 1,000 per reversal. Check with your bank for ECS reversal charges to know how much you will be charged in case of a missed payment. Also, mutual funds don't charge anything for SIP reversal. The only thing that they are empowered to do in such situations is to not allot any units to you for missed payments.


What to do to stop SIP from reversing?

Now we know that an SIP reversal doesn't affect your CIBIL but the banks may charge hefty amounts for ECS bounce. This charge may act as a deterrent for you to start an SIP. Here are a few ways by which you can stop your SIP from reversing:

  • Maintain balance one month in advance - Try to maintain the required balance in your account one month in advance. This will help you stay ahead of the curve by 30 days and avoid reversals.
  • Monthly reminder - Set a monthly reminder in your phone and transfer the money in your account the day reminder alarm goes off.
  • Withdrawing already invested SIP amount - In case you are not able to arrange the money due to unseen circumstances then you can withdraw the amount equivalent to your SIP amount from your fund so that the same gets reinvested. This will save you from the reversal charges. However, you may have to bear exit load charges (if redeemed in the load period) and capital gain tax.

We hope with this post a lot of confusion regarding the impact of SIP bounce on CIBIL is cleared! For more such posts follow our blog and for any queries please feel free to contact us at finriseinvestment@gmail.com.

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