A mutual fund is a professionally managed company that collects money from many investors and invests it in securities such as stocks, bonds and short-term debt, equity or bond funds and money market funds.
Mutual funds are a good investment for investors looking to diversify their portfolio. Instead of betting everything on one company or sector, a mutual fund invests in different stocks to try to minimize portfolio risk.
The term is typically used in the US, Canada and India, while similar structures around the world include the SICAV in Europe and the open-ended investment firm in the UK.
What will mutual funds do, if two or more installments are missed?
You can invest in mutual funds through regular periodic investments and/or lump sum investments. In the first case, you can choose how often you want to invest. For daily/weekly/monthly frequency, you can automate your investments via SIP.
This automation can be via post-dated checks or electronic debit from bank accounts. Electronic debits can be set up via the “direct debit” feature or via NACH (National Automated Clearing House). Application forms are available from the respective mutual funds, for the process.
This reduces your efforts as you don’t have to fill out a new form every month or think about which scheme to invest. Just select the scheme, amount and date and your transactions will happen automatically, for the period you choose. You can set up a SIP for six months or more. Just make sure there’s a sufficient balance in your bank account.
Your question becomes relevant here. If you lose two or three consecutive installments, the house of funds can stop depositing post-dated checks and return any unused checks or stop charging your account. No penalty is levied and there is no confiscation either.
You can restart your SIP, in the same account, at any time.