Explained: What happens to your mutual fund investments when your bank account is closed?

Posted on 18/01/2025

Managing mutual fund investments requires seamless coordination with your bank account for transactions such as SIPs, SWPs, and redemption payouts. Most of the investors typically route their mutual fund investments through a particular savings bank account.

They share the bank details to the fund house when they start investing in any mutual fund scheme. The bank details are used to debit the investment amount and credit the redemption proceeds. But what happens if your bank account linked to the mutual fund is closed?

Impact on mutual fund transactions

Systematic Investment Plans (SIPs): If your SIPs are linked to a closed bank account, the fund house will not be able to debit the account for further investments. This will result in your SIPs getting discontinued due to non-payment.
Systematic Withdrawal Plans (SWPs) and redemptions: For withdrawals and redemptions, the proceeds are credited to the bank account registered with the AMC. If that account is closed, the payout will fail, and the amount will remain with the fund house until the issue is resolved.
Dividend payments: If you are invested in dividend-paying mutual funds, the dividends will also not be credited if the bank account is closed, leading to delays in receiving the funds.

Steps to take when your bank account is closed

Notify AMC: As soon as the bank account is closed, inform the mutual fund house or the Registered Transfer Agent (RTA) like CAMS or KFintech.
Update bank details: Submit a bank mandate change form along with a cancelled cheque or bank statement of your new bank account. This ensures future transactions are linked to your updated account.
Check pending transactions: If there are any pending SIPs, SWPs, or payouts, coordinate with the fund house to reinitiate them after updating your bank details.
Pause and resume SIPs: If your SIPs have failed due to a closed account, pause them temporarily. Once your bank details are updated, you can resume the SIPs without affecting your investment goals.
Monitor communications: Keep an eye on emails or messages from your fund house regarding failed transactions or payouts to ensure timely resolution.

What happens to mutual fund investments?

The mutual fund investments remain safe, even if your linked bank account is closed. The units one holds in the mutual fund schemes are not impacted by the closure of the bank account. However, failing to update the bank details can delay transactions and payouts.

Caution

Always update the bank details immediately after closing an account.
Maintain a record of all mutual fund investments and their linked bank accounts to avoid confusion.
Set up email and SMS alerts with your fund house to stay updated on transactions.

Closing a bank account linked to mutual funds can disrupt transactions, but the situation is easily manageable with prompt action. By notifying the fund house and updating the new bank details, one can ensure seamless management of their mutual fund investments. Staying proactive and vigilant will help one to avoid delays and keep their investment journey on track.

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