Mutual funds are increasingly becoming a popular investment option. However, setting up a debit mandate from a bank and registering for a SIP takes around 25-30 days.
An e-mandate is a facility that eases this registration process by reducing the documentation and time required. It helps digitise the entire process and reduce the registration time to 2-3 days for mutual funds. E-Mandates are helpful for both investors and mutual fund agencies.
In this blog, we will learn about e-mandates in mutual funds.
What Is an E-Mandate in Mutual Funds?
A mandate is an instruction individuals provide to their banks for automatically recurring payments. Nearly all large banks in India offer this facility.
E-Mandate is a digital payment service introduced jointly by RBI (Reserve Bank of India) and NPCI (National Payments Corporation of India). It facilitates automatic recurring payments from an individual without any intrusion required.
E-Mandates are useful for enterprises and their clients in managing recurring payments such as loan repayments, insurance payments, SIP instalments, etc. They are hassle-free and reduce the burden on individuals required to make timely payments.
Previously a physical application was required to apply for recurring payments. This was a time-consuming and challenging process. The e-mandate facility was introduced around five years ago. E-mandates reduce the SIP registration time from 25-30 days to 2-3 days. Hence, it is becoming increasingly popular.
Types of E-Mandates
One can authorise two types of e-mandates with banks. These are
- Debit mandate: After one completes his registration, a debit mandate allows banks to debit money regularly for recurring payment plans. For example, if one starts investing Rs. 2,000 in a SIP every month, his bank will debit the amount to a SIP for a mutual fund. This helps in avoiding late payments.
- Credit mandate: Similar to a debit mandate, a credit mandate ensures businesses that all recurring payments are credited on time and regularly.
Eligibility Criteria and Prerequisites for E-Mandate Registration
While learning about what e-mandate is for mutual funds, it is important to know the eligibility criteria and prerequisites for e-mandate registration. The following are the eligibility parameters for starting an e-mandate:
- You must have your Aadhaar linked to your bank account.
- Your bank account must be registered to provide NACH services.
The following documents are required for e-mandate registration:
- The online e-mandate registration form
- A registered bank account
- An Aadhaar card
- A phone number linked to your Aadhaar and bank account
Some other prerequisites for an e-mandate are:
- Your bank must be registered with NPCI.
- Your PAN number must be linked with your Aadhaar card and mutual fund investments.
There are some cases where an e-mandate application may be rejected. Some of these situations are
- When your bank does not provide NACH services.
- When the portfolio number you enter is wrong.
- The details you provide in an e-mandate form are incorrect.
Only investors who hold their funds in individual accounts can avail of the e-mandate facility. Joint mutual fund holders cannot avail of this facility as of now. Also, there is a maximum investment limit of Rs. 1 lakh while investing via e-mandates.
Steps for Registration of E-Mandate
Before investing, one should know the e-mandate registration process for mutual funds. Each financial institution or AMC has a different procedure for e-mandate registration. However, there are some common steps. These are
Step 1: Visit the e-mandate registration page of your concerned financial institution.
Step 2: Enter your account details and log in to your account.
Step 3: Enter the security code sent to your linked email address.
Step 4: Select the option to create a mandate. You will see a form with your various bank details filled in. These include bank account number, account type, holder’s name, utility code, etc. There will be an option to verify using either a debit card or net banking.
Step 5: Select the option you want and click proceed.
Step 6: The e-mandate registration form will appear with your bank account details present.
Step 7: Check your registered phone number and enter the OTP received.
After completing the registration procedure, you will receive a confirmation.
How Do E-Mandates Work for Mutual Funds?
Knowing the working procedure of e-mandates is crucial to understand what e-mandates for mutual funds are. The following outlines the e-mandate working procedure for mutual funds:
- The investor registers for an e-mandate with the asset management company.
- NPCI sends the mandate to the investor’s issuing bank.
- Next, the investor’s bank account debits the investment amount.
- The amount is then credited to the fund house’s bank account for investment in the mutual fund.
- Finally, the sponsor bank sends the amount to the AMC.
Investors can create an authenticated mandate using electronic channels. This helps shorten the mandate cycle. This is also secure since it is in the hands of the investor.
Advantages of Investing in Mutual Funds via E-Mandates
The following are some of the advantages of using e-mandates for timely payments:
- Secured payments: E-mandate transactions are secure since they are based on the RBIs framework and comply with RBIs rules and regulations.
- Transparency: Since the e-mandate procedure is completely online, it provides transparency. There are no hidden costs or charges associated with it.
- Organised payments: E-mandates allow the processing of regular payments on time without investors worrying about missing any payments. The investor’s account debits the SIP instalments on a timely basis and credits it to the AMC.
- Flexibility: If customers want, they can stop the automated payments anytime.
- Easy registration process: For SIPs, it takes only 2-3 days for e-mandate registration, and one can start investing in less than a week.
- Digitised process: There is no need for manual documentation for e-mandates. The entire process is online.
How to Stop an E-Mandate?
Such a situation may arise when one must cancel an e-mandate. It is a simple procedure. One can initiate an e-mandate cancellation by contacting the financial institution where they set up the e-mandate. One can also remove the instruction online without notifying the user institution.
Many financial institutions, such as banks, asset management companies, brokerage firms, etc., provide the option for e-mandate cancellation online. However, there are still some which don’t. This makes cancellation a difficult process. In such instances, approaching the financial institution directly is the best option.
The following is the process to fill out the NACH e-mandate cancellation form:
Step 1: After logging in to your netbanking, select the appropriate checkbox for creating, editing or cancelling the e-mandate.
Step 2: Mention all your bank account details, such as account number, account type, IFSC code, holder’s name, etc. Also, mention the destination bank.
Step 3: Mention the amount and frequency of payments. Also, mention whether the amount is fixed or maximum.
Step 4: Input your portfolio and application number.
Step 5: Type in your phone number and email address.
Step 6: Enter the start and end date of the mandate and provide your signature.
Step 7: Mention the bank account holder’s name.
E-Mandates have revolutionised digital payments allowing people and institutions to streamline scheduled payments. With it, investors no longer have to wait for days to start a SIP. The entire process of registering an e-mandate is digitalised, requiring no physical forms or extensive documentation. Before investing, one should read the above guide on what e-mandates in mutual funds are.
Frequently Asked Questions
What will happen if the bank account with the e-mandate has insufficient funds?
The transaction will fail if the bank account linked with the e-mandate has insufficient funds. This may result in additional costs and penalty charges for the default. These will reflect when the bank account has sufficient balance again.
What is the difference between e-mandates and ECS?
An e-mandate is a completely online process, while ECS is offline. Therefore, ECS requires the signing of physical documents and manual verification. On the other hand, e-mandates require no such procedures.
What is the difference between e-NACH and e-mandate?
Even though both of these services are based on the same framework, they are different. However, the main difference between e-NACH and e-mandate is that e-NACH is governed by NPCI, while individual banks govern e-mandates.