How a SIP, STP or SWP Instruction Runs, Start to Stop

Registering a standing instruction files a schedule; it moves nothing and creates nothing. Every due date after that is struck as a transaction in its own right, with money of its own arriving, a value per unit of its own attaching, and a line of its own written. Money that fails to arrive breaks that one date only. Stopping ends future dates and leaves every unit already allotted exactly where it is.

The everyday version carries the whole shape. A household tells the milk vendor on the lane to leave two litres at the door each morning. The telling is not a delivery. Nothing has arrived in the kitchen because somebody spoke to him. Each morning is its own delivery, at that morning's price, and it either happens or it does not. If nobody answers the door on Tuesday, Tuesday is simply gone, and Wednesday is not four litres. On the day the vendor is asked to stop, the milk already in the kitchen stays in the kitchen. A standing instruction into a mutual fund scheme behaves in exactly that shape, and nearly every surprise a holder meets later comes from reading the arrangement and the events it produces as one single thing.

The same scheme supplies every figure that follows. Girnar Asset Management Limited, an invented fund house, runs the Girnar Large Cap Equity Fund, an open ended equity scheme with net assets of Rs 4,200 crore against 120.00 crore units in issue. Dividing the first by the second gives one unit worth Rs 35.00 exactly, and that division is performed here rather than the result being quoted every time it is needed. Kalyani Bhagat manages the portfolio and Sohail Merchant heads operations. A registrar and transfer agent, a trustee company, a custodian, an auditor and a distributor stand behind the scheme. Each of those is a role, and a role behaves the same way whoever holds it.

Three subjects sit earlier in this sequence, and none of them is rebuilt below. The definition of a unit, and the way money becomes units, is settled there. Which struck value per unit an application is measured against is settled there. Which of the three instructions is which, and how a holder tells a systematic investment plan (SIP) from a systematic transfer plan (STP) from a systematic withdrawal plan (SWP), is settled there too. One instruction is walked through its whole life below, from the filing that opens it to the request that closes it, with the record examined at each step. Whether a holder should give an instruction of any kind turns on that holder rather than on the register, and it is taken up under wealth and advice.

What does registering a standing instruction actually create?

An arrangement, and nothing else. A registrationThe one time filing that opens a standing arrangement and produces no transaction by itself. is a single document lodged with the registrar and transfer agent, and it goes into a register as a set of terms waiting for a date. The filing names the scheme, the plan, the folioThe account on which one holder's units in a scheme are recorded. the units are to land on, the amount to be applied each time, and the schedule that will throw up the due dates. Lodging it creates no transaction of any kind: no rupee moves, no unit is allotted, and the unit balance on the folio one minute after the filing is the number that was there one minute before.

Look closely at the register once the clerk has filed it. Not units. Not money. Not a debt owed by anybody to anybody. The register holds terms and a forward date. Terms and a forward date are a completely different sort of object from a transaction, and everything below swings on the difference. A transaction is an event that happened: it has an arrival, a value per unit attached to it, a unit count and a line. An arrangement is a promise about events that have not happened. Sohail Merchant, who heads operations at Girnar Asset Management Limited, would call the first a record and the second a rule, and the two live in different places in the system for exactly that reason.

The register holds one more thing at this point, and it matters when the arrangement is closed: the terms on which the arrangement itself may be brought to an end. A standing instruction into the Girnar Large Cap Equity Fund arrives with its own ending built into it, in the same way that a rent agreement carries a notice clause on the day it is signed rather than the day somebody wants to leave. Nothing on the folio changes when that clause is written, and nothing on the folio changes when it is later used.

The permitted contents of a registration are settled elsewhere. Whether there is a smallest amount that may be applied on each occasionOne due date thrown up by a standing arrangement, which becomes a transaction in its own right., how many due dates an arrangement may be filed for, what schedules are permitted, and what the form itself must carry are all conditions the Securities and Exchange Board of India (SEBI) sets for mutual fund schemes. Conditions of that sort are revised. The current position on all of those conditions is at sebi.gov.in and is worth reading on the day it matters.

Where does the permission to take the money actually sit?

Somewhere else entirely, and that is the second thing worth slowing down for. The authorisationThe separate permission that lets an amount be drawn from a named account on a schedule. is a second permission, given by the holder over a bank account, allowing an amount to be drawn from it when a date comes round. The permission does not live in the register at Girnar Asset Management Limited. The permission lives with the payment arrangement attached to the account. A holder can therefore hold a live registration and a dead permission at the same moment, with neither document contradicting the other.

Two documents, two homes, two different jobs. The registration decides what an occasion is for: the scheme, the plan, the folio and the amount. The permission decides only whether that much can be drawn from that account when asked. A permission being perfectly in order and the money actually reaching the scheme are two separate facts, and it is the second one, not the first, that brings units into existence. Every holder who has ever said the mandate was active so it should have gone through has run into exactly this gap.

The everyday version is a newspaper asked for by standing arrangement and paid for by a standing debit at the bank. The paperwork at the bank can be flawless and the balance on the morning can still be short, or the account can be frozen for a reason that has nothing to do with newspapers. The vendor's book still says a paper was asked for; the bank's book says nothing was paid; and the morning in question produced no newspaper. Neither book is wrong, and neither one on its own says what happened.

How that permission is registered, presented and answered is a matter for the payment rails the National Payments Corporation of India (NPCI) sets out at npci.org.in. The two ends sit in different places. The arrangement with the scheme is ended at the scheme's end, and the permission over the account is withdrawn at the account's end. Ending one does not automatically end the other, and a holder who deals with only one end has left the other standing.

Why is every occasion a transaction of its own?

Because it is built like one from the ground up. When a date arrives, an application is generated against the terms in the register, money is drawn under the separate permission, the arrival is recognised, a struck value per unit attaches to it, a unit count is worked out by division, and a line is written to the folio. Every one of those steps belongs to that date alone. Running the schedule three times runs that sequence three times, from a cold start on each pass.

Nothing carries forward from one occasion to the next except the unit balance sitting on the folio. No part payment is outstanding. No price is held over. No credit is stored up. There is no total in the register at all, so the register cannot track how far through one the holder has got. There is an amount, a schedule, and a growing stack of finished transactions underneath.

The wrong picture is a loan being repaid in instalments, and it is worth naming because it is the picture most people carry in. Under that picture there is one big obligation of a known size, each payment reduces it, and a missed payment leaves a hole that has to be filled. None of that describes what is happening here. There is no obligation of a known size, nothing is being reduced, and a date that produces nothing leaves no hole because there was never a shaped total for a hole to sit in. A reader carrying the loan picture will get the failure, the change and the stopping wrong in turn, so the picture has to go before any of the three is worked.

Which struck value per unit any one of those dates attaches to is decided by rules SEBI makes about applications and the receipt of money, and those rules are covered separately. Only the shape matters here: one date, one attachment, one division, one line.

What happens when the money for one occasion never arrives?

The register can do only one thing, and that one thing is nothing. Units come out of money that arrived, and no money arrived, so no units are created for that date. There is no allotment, so no allotment line is written. And nobody owes anybody anything afterwards: the holder does not owe the scheme the amount, the scheme does not owe the holder the units, and no later date carries a claim from the earlier one. A failed occasionA due date on which no units come into being, leaving the standing arrangement itself in place. is all of that and nothing more.

The transaction broke; the arrangement did not. The arrangement and the transaction are two different objects, and this is where keeping them apart earns its keep. The terms are still in the register with the same scheme, the same folio, the same amount and the same schedule, and the next date will be worked exactly as though the previous one had never been due. Whether the arrangement can be brought to an end by dates coming to nothing, and how many would be needed if so, is a condition attaching to it rather than a fact of the arithmetic, and the number for it sits with SEBI at sebi.gov.in.

The money that did not leave the account is a matter between the holder and the bank, and it stays there. Anything that follows at that end follows from the account and the arrangements over it, described by NPCI at npci.org.in. The shortfall is not a charge the scheme has made, it does not appear on the folio, and the registrar and transfer agent has no line for it. Any penalty, fee or permitted count of failures is a condition of an account or of a rule that moves, rather than an arithmetic consequence of the date coming to nothing.

One thing does change, though, and holders almost never expect it. The occasion that came to nothing has quietly altered a figure describing the whole holding, and it has done so in a direction that depends entirely on where that occasion happened to sit. Both directions are worked out in full below. Showing only one of them would smuggle in a general claim, and the arithmetic behind them supports no general claim.

What do three occasions look like worked through end to end?

The registration already on the table is Rs 10,000/- on each date into the Girnar Large Cap Equity Fund, on the regular plan, against a single folio. Three dates fall due and all three are met. The first attaches to a value per unit of Rs 35.00. Rs 4,200 crore of net assets divided by 120.00 crore units gives that figure, and it is the only one of the three taken from the scheme's stated position. The other two attach to Rs 32.00 and Rs 38.00. Both of those are assumed. The scheme's stated position gives a single struck figure and nothing resembling a series behind it. Everything below is worked in exact fractions first and set down only after it has been rounded once, at the end.

A standing arrangement behaves differently from a single transaction here, so look at what each of those divisions actually did. Each occasion is rounded on its own, so each one leaves a residue of its own, and the residues pile up rather than being settled at the end. The register carries units to three decimals, so every date drops or gains a sliver against the exact quotient, and the sliver has a direction.

Read the last row slowly. The three residues do not cancel. One occasion came up short by a 3,500th of a unit, one had no residue at all because 625 over 2 terminates, and one went over by a 9,500th, and putting those together leaves the holding short by three 16,625ths of a unit against the exact arithmetic. Nothing in the mechanism makes residues offset each other; they simply land where the numbers put them, and any cancellation would be a coincidence of a particular set of values rather than a rule of the method.

There is a second and subtler piece of tidiness in that table which deserves the same suspicion. Rounding each occasion separately and then adding gives 861.372, and rounding the exact total of 861.372180 and onward also gives 861.372. The two routes agree here. The two routes are not obliged to agree, and it is easy to show it: take three occasions at Rs 20.00, Rs 20.25 and Rs 21.00 and the separately rounded units come to 1,470.017 while the rounded exact total comes to 1,470.018. One thousandth of a unit apart, from arithmetic no different in kind from the arithmetic above. The agreement between the two routes here is a property of these numbers and not a guarantee about any others.

With the units settled, the average cost per unitTotal rupees applied divided by total units received, taken across every occasion that ran. is Rs 30,000/- divided by 861.372 units. The quotient is Rs 34.828157 and onward, or Rs 34.8282 rounded to four decimals. The average deserves a plain statement of what it is. The average describes a record: rupees in, units out, divided. The average is not a measure of how well anything did, and it settles nothing about whether Rs 30,000/- applied this way was better or worse than Rs 30,000/- applied any other way.

One check needs naming before it is offered. Adding 285.714 and 312.500 and 263.158 to get 861.372 is the identical addition that produced the total in the first place, so it is not a check at all. A check that cannot fail is not a check. The independent route is to multiply back. The printed average of Rs 34.8282 multiplied by 861.372 units gives Rs 30,000.0363. The product sits about 3.6 paise above the Rs 30,000/- actually applied. The overshoot is real and it has a direction. The average was rounded up at the fourth decimal, so multiplying it back overstates the money by paise and on the high side. A correct division should produce exactly that. Had the division gone wrong by a digit or a factor, the product would have missed Rs 30,000/- by rupees rather than by paise, and that is the whole reason for doing the multiplication.

Does a missed occasion push the average cost up or down?

The direction depends on which date went missing, and that is not a hedge. Break the record on purpose, twice, using the same three assumed values and changing only which date came to nothing. Suppose first that the money for the Rs 32.00 date never reached the scheme. A date that comes to nothing creates nothing, no amount is owed and no later date repairs it. The holding is 285.714 plus 263.158, or 548.872 units, against Rs 20,000/- applied. Divide and the figure is Rs 36.4384. The figure has gone up from Rs 34.8282, and it went up because the date that vanished was the one buying the most units per rupee.

Now put that back and break it the other way. Suppose instead the Rs 38.00 date came to nothing. The holding is 285.714 plus 312.500, or 598.214 units, again against Rs 20,000/-. Divide and the figure is Rs 33.4329. The figure has gone down. Same instruction, same amount, same three values, one missed date each time, and the figure moves in opposite directions depending only on which date it was.

A figure worth printing is a figure worth multiplying back, so both of those divisions get the same independent treatment as the first one. 548.872 units multiplied by Rs 36.4384 gives Rs 20,000.0175, about 1.75 paise above the Rs 20,000/- applied. 598.214 units multiplied by Rs 33.4329 gives Rs 20,000.0288, about 2.88 paise above. Both overshoot, both by paise rather than rupees, and both on the high side for the same reason: each average was rounded up at the fourth decimal, so each one carries a hair more rupees than the money actually supports. Two different residues, both pointing the same way, and neither of them cancelling the other.

Now the honest statement of what has been shown. A date that comes to nothing moves the average cost per unit in whichever direction that date happened to sit, and nothing in the mechanism fixes which date fails. Showing only the first break would leave the impression that missing a date always pushes the figure up. The arithmetic supports no claim of that kind. The arithmetic runs in two directions and both of them are worked above.

What does one withdrawal occasion do to a unit balance?

A withdrawal occasion cancels units, and the number it cancels is decided by the value per unit on that date rather than by anything in the arrangement. The withdrawal side shows it plainly. The holder here has 2,857.143 units on the folio, the number Rs 1,00,000/- put in at Rs 35.00 a unit produced, and a standing withdrawal instruction asks for a fixed Rs 20,000/- on each date. The rupee figure is the thing held still. Units are what has to be cancelled to raise those rupees, so the unit figure is what moves.

Work the default. At a value per unit of Rs 35.00, Rs 20,000/- divided by Rs 35.00 is 571.428571 and onward, and the register carries units to three decimals, so 571.429 units are cancelled and 2,285.714 units are left standing. The rounding takes three 7,000ths of a unit more than the exact division asks for. At Rs 35.00 a unit that sliver is exactly one and a half paise, and it is taken on this one date rather than smoothed away later. Every date of a running withdrawal instruction leaves a residue of its own in the same way, and there is no mechanism anywhere that makes a set of them cancel out.

Now the two ends of the range, worth having in view before the control is touched. At a value per unit of Rs 25.00 the same Rs 20,000/- cancels 800.000 units exactly and leaves 2,057.143 standing. At Rs 45.00 it cancels 444.444 units and leaves 2,412.699. The two ends are 355.556 units apart on an identical withdrawal, and that is the entire point. An instruction that names a rupee amount has not named a unit amount, and cannot.

One consequence has to be said plainly and then left alone. Every date of a withdrawal instruction is a redemption, and so is every date of a transfer instruction on the leg being left. A redemption carries a tax consequence that follows from tax law rather than from anything the scheme does, and tax law moves. Rates, thresholds and holding periods are at incometaxindia.gov.in, and the scheme side of it at sebi.gov.in.

What can be changed part way, and what does a change reach?

Forward, and only forward. A modificationA change filed against a running arrangement, which lands on dates still to come and on no earlier one. is a fresh instruction against the arrangement sitting in the register, and it rewrites the terms that future dates will be worked against. A modification does not touch a date that has already run. Nobody chose to be strict about that. A date that has already taken its value per unit is a closed transaction, and a change to an arrangement has nothing left there to reach.

Put it in the everyday frame again. Telling the milk vendor to make it three litres from now on does not turn last Thursday into three litres, and nobody expects it to. Last Thursday was a delivery and the new instruction is a rule. The scheme version feels different only because the two objects look alike on a screen: the arrangement and the transactions it produced sit in the same online statement, one above the other, and nothing on the screen shouts that they are different kinds of thing.

Which particulars may be varied on a running arrangement, and which of them instead need a fresh registration, is a condition set for mutual fund schemes rather than an arithmetic fact, and it belongs to SEBI. The shape that holds is the one above: whatever the change is permitted to touch, the reach is forward.

There is a second half to a change that holders forget, and it comes straight out of the second block. If the change raises the amount, the arrangement now asks for more money than the permission over the account was given for. The terms with the scheme and the permission at the bank are two documents in two places, so changing one does not change the other. A raised amount with an unraised permission is a date waiting to come to nothing.

What happens to the units when the instruction is stopped?

Nothing whatever. The request that ends a running arrangement is a cessationThe closing of an arrangement, which ends dates still to come and reaches no unit already allotted., and all it does is take the terms out of the register so that no further date is worked. The units already allotted are not part of the arrangement; they are the output of transactions that finished. The units stay on the folio, their value per unit keeps moving with the scheme, and not one rupee travels anywhere.

Ending an instruction that was buying is not a redemption, and ending one that was withdrawing is not a purchase. Each half is misread in its own direction, so say both of them out loud. A holder who ends an investment instruction has stopped putting money in and is still fully invested. A holder who ends a withdrawal instruction has stopped taking money out and has bought nothing back. In each case the arrangement went and the holding stayed.

The worked figures make it concrete. Stopping the instruction after the three dates that ran leaves the folio carrying 861.372 units. Rs 4,200 crore of net assets over 120.00 crore units gives Rs 35.00 a unit, and at that price the holding comes to 861.372 multiplied by Rs 35.00, or Rs 30,148.02. Every one of those units was there the minute before the cessation and is there the minute after. The holding is worth whatever the value per unit happens to be on the day somebody looks, and nobody can know that figure in advance.

Getting money out is a separate instruction of its own: a redemption, given as its own request, cancelling units and paying proceeds. Two instructions, two effects, and a holder who gives the first while meaning the second has not done the thing they intended. There is a third loose end as well. Ending the arrangement with the scheme does not withdraw the permission over the bank account, and that permission is closed at the account's end by whoever holds it.

How does a transfer instruction behave once it is running?

Exactly like the other two, except that every date carries two halves instead of one. A date of a transfer instruction is a switch, and a switch has a leg being left and a leg being joined: units are cancelled in one scheme and units are created in the other. Run it from the Girnar Large Cap Equity Fund into the Girnar Broad Market Index Fund and each date cancels units in the equity scheme and creates them in the index scheme, on the same date, under one instruction.

Two legs means two of everything a single date needs. Two attachments, so the date can meet one set of conditions on the way out and another on the way in. Two divisions, each with a residue of its own, so a transfer instruction accumulates residues at twice the rate of a plain investment instruction. And two chances to not complete, and that is where the shape genuinely differs from the other two.

Among the three, only a transfer can have a date that completes on one side and produces nothing on the other, and no other instruction of the three has a partial outcome at all. An investment date either produced units or it did not. A withdrawal date either cancelled units or it did not. A transfer date can cancel units in the scheme being left while the leg into the other scheme does not run, and a holder looking at one folio will see a completed movement while the other folio shows nothing.

There is a cost consequence built into that shape as well, and it is worth naming. Every date of a transfer instruction is a fresh departure from the scheme being left, so whatever exit terms that scheme applies are met on every single date rather than once. The rate and the period in those terms are the scheme's own, and they differ from one scheme to the next. The same goes for the tax consequence: each leg out is a redemption, so a consequence follows, and it sits in tax law at incometaxindia.gov.in rather than in anything the register holds.

What does the whole arrangement leave behind in the record?

More pieces than most holders expect, and they are not all in one place. The record trailEverything a standing arrangement leaves behind: the filing, the debit permission, and one line for each date that ran. of the worked instruction is one registration, one permission over the bank account, and three transaction lines. Five separate items from what felt like a single decision, sitting in at least two different systems. The registrar and transfer agent holds the first and the third, and the bank holds the second.

The count of lines is the part a holder actually has to keep, and keeping only the registration keeps the rule and not one of the events. The registration says Rs 10,000/- on a schedule. The registration does not say that 285.714 units were allotted at Rs 35.00, or 312.500 at Rs 32.00, or 263.158 at Rs 38.00. Each of those three allotments exists only on its own line, carrying its own value per unit, and no reading of the registration can reconstruct any of them.

Keeping the papers for a standing arrangement is therefore a different job from keeping the papers for one purchase, and it is worth saying to anybody who files their own. One purchase leaves one thing to keep. An arrangement leaves one thing at the start and then a new thing on every date it runs, quietly, without asking, until it is stopped. A household that files the registration in a folder and never opens the folder again has the smallest and least useful part of the trail.

Where the units themselves sit is a separate question from where the lines sit. Units held on a folio are recorded by the registrar and transfer agent; units held in dematerialised form sit with a depository instead, and Central Depository Services Limited (CDSL) at cdslindia.com and National Securities Depository Limited (NSDL) at nsdl.co.in are where that arrangement is described. How either route is operated is covered separately, and a folio is not the only place a holding can live.

Girnar Asset Management Limited, the Girnar Large Cap Equity Fund, the Girnar Broad Market Index Fund, Kalyani Bhagat and Sohail Merchant are invented.
Educational material. Not advice on any investment, tax, budget or market position.