As digital transactions slowly but surely gain steam in the country, mutual funds too are opening up newer digital avenues for investors. The aim is to make investing as easier as possible. According to the Reserve Bank of India and the National Payments Corp. of India (NPCI), the value of digital transactions went up to Rs 207.98 crore in 2017-18 from Rs 66.34 crore in 2013-14.
Last year, IDFC Asset Management Co. Ltd and LIC Mutual Fund Asset Management Co. Ltd added the Unified Payments Interface (UPI) option, in addition to the netbanking and debit card options for online investment. Ever since, more fund houses have joined in. Aditya Birla Sun Life AMC, Reliance Nippon Life AMC, Motilal Oswal AMC, Quantum AMC and Baroda Pioneer AMC now offer UPI as a payment option.
Reducing time
It takes about 2-3 days to get units in your portfolio after the final transaction. Redemption, too, takes about 2-3 days.
Last year, instant redemption facility became a reality when some fund houses started offering it. Capital markets regulator Securities and Exchange Board of India (Sebi) weighed in and laid down guidelines about the manner in which fund houses should offer this facility. At the moment, only liquid funds are allowed to provide instant redemption.
By offering UPI, fund houses are trying to reduce the time for investing in a scheme to within 24 hours.
How it works
At present, if you visit your fund house's website to buy a scheme, you can invest through internet banking, debit card, national electronic funds transfer (NEFT)/Real Time Gross Settlement (RTGS) systems or UPI.
If you choose UPI, you need to have a virtual payments address (VPA) with your bank, assuming that your bank is on NPCI platform. The UPI interface, built by the NPCI was set up to unify all retail payment mechanisms under one roof, has been introduced to facilitate transfer of payments from one person to another, more seamlessly (without asking for too many details) and faster.
Get your VPA through your bank app or the BHIM app on your smartphone. Once you submit your VPA to your fund's website, the fund house sends you a text message and an alert on your app about the transaction. You need to approve it. Log in to your app, authorize the transaction and money gets instantly transferred to your fund house.
What works?
But why would you choose UPI when you can transfer money using internet banking? As per MF rules, if you invest an amount greater than Rs 2 lakh, units are allotted only after your money gets deposited in the fund house. For amounts up to Rs 2 lakh, units are allotted even if it takes a day or two for your fund house to get your money.
But in a liquid fund, no matter how much you invest, units will only be allotted to you once your fund house gets your money. And here's where UPI makes a difference. If you buy liquid fund units through a simple internet banking transfer, then there are chances that your fund house will get money only the next day, especially in cases where funds get routed through an aggregator. Under UPI, money gets transferred instantly.
"Say, you invest on a Friday using internet banking option. Your fund house will get your money on Monday and (as per MF rules that apply to liquid funds), you get previous day's net asset value (NAV), that is Sunday's NAV. But if you invest using the UPI option, money gets transferred on Friday itself and you get Thursday's NAV," said Jimmy Patel, chief executive officer, Quantum AMC, which launched its UPI facility in March 2018.
"There is also no need to remember your bank's internet username and password when you use UPI. Just remember your VPA, which is like an email ID," said Sundeep Sikka, chief executive officer, Reliance Nippon Life AMC.
What doesn't?
At present, you cannot buy units worth more than Rs 1 lakh with UPI; NPCI has fixed this limit. Not all funds are on the UPI platform as yet, but industry experts said more fund houses are expected to join in.
In arrangement with HT Syndication | MINT