It’s the age of digital payments, and can mutual funds be far behind? LIC Mutual Fund Asset Management Co. Ltd and IDFC Asset Management Co. Ltd have added the Unified Payments Interface (UPI) as an additional option to make payments on their websites. This is in addition to the Net banking and debit card modes, through which investors can make their investments online.
How is it different?
Like Net banking, UPI too needs you to use the internet to transfer money. But the good part is that you don’t need to have the internet banking facility.
All you need, to make a payment (or investment as in this case), is a smart phone (Android smartphones for now, but UPI is coming soon on iOS phones) and a Virtual Payment Address (VPA), which is something like your identity. Your VPA is attached to your mobile phone, which itself is attached to your bank account: that’s enough for the UPI system to remit money.
Until now, if you wanted to invest in a mutual fund online through internet banking, there were only two methods: the National Electronics Funds Transfer (NEFT) and Real Time Gross Settlement (RTGS). But these have drawbacks. While NEFT transfers money in batches and not in real time, the RTGS transfers money in real time but the minimum amount required to be remitted here is Rs2 lakh.
The UPI interface, built by the National Payments Corporation of India (NPCI; an organisation that the Reserve Bank of India (RBI) set up to unify all the retail payment mechanisms under one roof), has been introduced to facilitate the transfer of payments from one person to another, more seamlessly (without asking for too many details) and faster.
Once you activate your VPA address through your bank’s app on your phone, you are good to invest in a mutual fund using UPI. Go to your fund’s website from your mobile phone, select your schemes, plans and options; and then you are directed to a page where you need to choose the mode of payment. If you choose UPI, your fund house will ask for your VPA. Then, you need to login to your bank’s app using your internet banking username and password or better still, your 4-digit mobile PIN or personal identification number. Authorize your transaction and money gets transferred instantly.
The ups and downs
At the moment, you can invest only up to Rs1 lakh per transaction (Rs20,000 if your bank account is not KYC compliant). But you can do multiple transactions through the day if you wish to invest more. Apart from not having to remember all those complicated usernames and passwords, UPI comes in handy if you want to invest in a liquid fund.
As per mutual fund rules, your fund house allots you the units of a liquid fund only after it receives your money in its bank account. Typically, this rule is applicable for all amounts in excess of Rs2 lakh, for all schemes other than liquid schemes. But for liquid schemes, the rule is applicable for any amount that you invest. “Hence, if you invest in a liquid fund using Net banking, your money can take up to 24 hours to reach the fund house, if a fund house has tied up with an aggregator to garner inflows. But UPI transfer is instantaneous, if the tie up of the fund house for UPI facility is directly with the bank…otherwise your money can still take up to 24 hours to reach the fund house, if a fund house has tied up for UPI with an aggregator to garner inflows,” said a senior operations official closely involved with setting up the UPI interface at one of the two fund houses mentioned above. He could not be named, as he is not the fund house’s official spokesperson.
The thing to remember here is: when your money reaches the fund houses, your liquid fund units get allotted to you at previous day’s net asset value. So if you invest today and your money reaches your fund houses tomorrow, you will get today’s net asset value (NAV).
But if you invest using the UPI interface today, money reaches the fund house today and you get yesterday’s NAV. This official added that once fund houses get systematic investment plans (SIPs) on the UPI platform, these registrations can also happen much faster and “there is no ambiguity of signature mismatches and mandate rejections”.
Fund houses like DSP BlackRock Investment Managers Pvt. Ltd and Quantum Asset Management Co. Ltd are planning to add the UPI interface on their websites. Expect many more to join the fray.