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SIP ECS when there isn't sufficient money in your account

Systematic Investment Planning (SIP) is one of the most common and preferred ways of investing in mutual fund schemes. 

And giving instructions to your bank to debit your account every month, and transfer the money to the mutual fund company for investment purposes is the most common form of implementing the SIP. This is called the Electronic Clearing System (Debit) mandate [ECS as is commonly known].

However, it can sometimes happen, that their isn't sufficient money in the account when the SIP ECS date falls due. The ECS mandate is given once for at least next 12 months... may be even more. And during this period, it is likely that some month may see a dip in our account balance -- maybe the salary gets delayed, maybe the money is withdrawn for some emergency; maybe something else becomes a priority.

So what happens if your account falls short of the SIP amount?

From MF's perspective
As per RBI guidelines on the ECS (and even the post dated cheque) payments, following process has to be followed w.r.t. the rejections pertaining to SIP investments in the mutual fund schemes: 

i. If the rejection of ECS is for the reason "account closed", no re-presentation shall be made and the SIP will be closed. 

ii. If the rejection of ECS is for the reason "insufficient funds", one more re-presentation shall be made. If this too gets rejected, the SIP will be closed.

iii. If the rejection of ECS is for any other reason, two more re-presentations shall be made. Upon rejection of these two subsequent re-presentations, SIP will be closed. 

So from MF perspective, there is no penalty or charges per se, except that there is a break in your investments.

From Bank's perspective
Banks, unfortunately, may not be so lenient. ECS returns due to insufficient funds would attract a penalty. This varies from bank to bank. While PSU banks may normally charge a nominal amount of Rs.50-100, charges of the private banks could be in the range of Rs.300-400.

Therefore, as long as the default in ECS payout is due to some genuine difficulty, it is Ok. However, don't let it happen due to any carelessness on your part.

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