SEBI’s new SIP cancellation rules to help consumers

Now you may cancel SIP just 3 working days before the monthly debit day: SEBI asks MFs to process it within 2 working days

Now mutual fund investors do not need to wait a long time for their systematic investment plan (SIP) to get cancelled as SEBI has reduced the time limit to do so to two working days from earlier 10 working days. The Securities and Exchange Board of India (SEBI) through a letter made this new rule mandatory for mutual fund companies and instructed them to ensure this happens for all SIPs be it online or offline.

This revised timelines for cancellation of SIPs has come into effect from December 1, 2024. Experts say this is a good move and will help investors to save ECS mandate return charges in case sufficient money is not there in the bank and the SIP gets triggered despite being cancelled.

“When an investor submits a request for cancellation of SIP, AMC will ensure that there is cancellation of auto-debit / SIP within 2 Business Days of such request placed by the investor,” said Invesco Mutual Fund in an addendum on December 3, 2024.

What did SEBI say about new SIP cancellation rules

SEBI has revised the timeline to honor an SIP cancellation request which is now T+2 i.e. within 2 working days of request being submitted for both physical and online applications.

Securities and Exchange Board of IndiaSource: SEBI letter dated October 25, 2024

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According to Awanish Raj, co-founder, AssetPlus, a chennai based mutual fund distributor, “In BSE Star MF platforms, Banks get the SIP debit request 2 days before the scheduled SIP date, so now with this new rule in place it does not impact the bank’s systems. This is because with the earlier 10 days’ timeline also, banks used to know about the SIP deduction 2 days prior. Once a customer's request is sent, further debit instructions to the customer's bank are stopped immediately.”

Abhijit Talukdar, founder, Attainix Consulting, a SEBI RIA registered firm, says, “This is a very good move by SEBI. Physiologically speaking most people tend to cancel the SIP installment close to the date due to any financial problems or other reasons. So earlier if they did cancel the installment due to the 10 working days rule the SIP may have been honoured. If sufficient money was not in the bank then the customer had to incur ECS return or mandate return charges which can quickly build up to a larger amount if multiple SIPs had failed. Now this problem is solved up to an extent.”

What did SEBI say about uniformity of cancellation of SIP

In another letter dated January 3, 2024, SEBI said that it has been decided the following to be implemented by all asset management companies (AMCs) with respect to cancellation of Systematic Investment Plans (SIPs):

● Uniform timeline for auto-cancellation of SIPs
All AMCs/RTAs shall also send a communication to investor after 1st failed debit attempt, mentioning that the SIP will cease in case of 3 consecutive rejections and another communication after cancellation of SIP intimating the cancellation to the investor.

SEBI Uniform Timeline for SIPSource: SEBI circular dated January 3, 2024

● Uniformity in SIP cancellation process
All AMCs shall ensure that all platforms (i.e. physical and online) of AMC, RTAs, exchanges, and other channel partners which are registering SIPs shall also provide the option for investors to cancel active SIPs. All AMCs need to also ensure that the AMC website and their respective RTA website provides for cancellation of SIPs on their websites irrespective of the origin of registration of such SIPs.

● Plausible reasons for cancellation of SIPs
All AMCs shall provide plausible reasons as given below, along with others as and when recommended by AMFI, and with an option to provide comments during pre-mature cancellation of SIPs by investors for all online SIP cancellations.