What is the use of e-mandate in a mutual fund scheme?

Investors are increasingly using E-mandates to automate recurring payments in mutual funds through SIPs. A deeper look at what it means:

A mandate is an instruction provided by an account holder to the bank to automate his recurring payment. E-mandate is a digital payment service introduced jointly by RBI (Reserve Bank of India) and NPCI (National Payments Corporation of India). Almost all large banks in India provide these facilities. They are hassle-free and reduce the burden on individuals to make timely payments. Typically, these are often used by investors who invest in mutual funds using systematic investment plans (SIPs). Earlier, investors filled a physical form to make recurring payments through SIPs, which was time-consuming and challenging. Once an E-mandate is set up it reduces the SIP registration time from earlier 21 days to 5-7 days now and hence is becoming popular.

How can you set up an e-mandate ?
Investors need to complete a one-time registration process for setting up a mandate with the fund house, registrar or through third-party portals that distribute mutual funds. In the case of sending a physical mandate a request form needs to be submitted and this process could take 3-4 weeks. Investors can set up an E-mandate digitally with their net banking authentication and it is completely paperless. Registration is done through internet banking of respective banks using net-banking credentials, while in some banks, even debit cards can be used. Some portals also use ‘E-sign’ using Aadhaar to set up mandates.

What amount of mandate should one set up?
The SIP amount should be lower than the set mandate amount. Distributors ask investors to set up a higher mandate amount to avoid rejections or to avoid setting up additional mandates in case you need to increase your SIP amount. Some portals also allow lumpsum investments based on the mandate set-up. For example, if your mandate amount is Rs 10,000, you can set up as many systematic plans you want using this mandate. However, the transaction amount for each SIP should be less than Rs 10,000.

How do e-mandates work for mutual funds?
Once an E-mandate is registered with a fund house or a portal, NPCI sends the mandate to the investor’s issuing bank; this is followed by the investor’s bank debiting the investment amount which is then credited to the fund house’s bank account for investment in the desired scheme.

How long does a mandate work? What is the type of transaction that can be done using it?
A mandate can be issued for a period of up to 30 years from the date of issuance. Validation will be embedded into the central system to accept only mandates with terms of 30 years or less. Both, SIP and lump-sum transactions can be initiated by using the E-mandate. Investors need to keep the daily total transaction limit within the upper limit set up in the mandate.


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