If you’re subscribed to any streaming channels where money automatically gets deducted from your bank account every month to get uninterrupted access to your favourite TV series or movies, then you already have an idea about how bank account mandates work in mutual funds investing.
Similarly, when investing in mutual funds, you need to set up automated payments through a mutual funds app (MF app). This ensures that money from your bank account gets automatically deposited into schemes of your choice at a pre-determined frequency, making investing effortless, just like watching your TV series without interruptions.
So, what enables this hassle-free automation? It’s the permission you give your bank to debit a specified amount of money at your chosen date. This process is mandatory for making regular SIP (Systematic Investment Plan) payments in mutual funds.
What is this process called?
In the world of online mutual fund investing, it’s known as “bank account mandate”. It might sound technical, but it’s a simple concept with significant implications for your investment journey.
In this article, we’ll help you understand what a bank account mandate is, explore its nitty gritty and how it can empower you to navigate the world of mutual funds in India confidently.
What is a Bank Account Mandate?
The term mandate reflects its core meaning—an official order or commission to do something. Simply put, a bank account mandate is an instruction you provide to your bank, authorising a third party, such as an Asset Management Company (AMC), to debit a specific amount from your account regularly.
Let’s say you want to invest ₹5,000 every month in a specific mutual fund through a SIP. Instead of manually transferring the money monthly, you can set up a bank account mandate. This authorises the AMC to automatically debit ₹5,000 from your bank account on a set date each month and invest it in the chosen fund.
Why are Bank Account Mandates Important for Mutual Fund Investing?
Bank account mandates are a ‘set-it-and-forget-it’ power added to your SIP automation since SIPs have become increasingly popular, thanks to their convenience and efficiency.
Reason 1: Time-Saving: Reclaim Your Precious Time
Time is our most valuable asset, and bank account mandates free you from the tedious task of manual transfers. Instead of logging into your bank account every month, navigating through menus, and entering transaction details, you can automate the entire process. This gives you time to focus on other important aspects of your life.
Reason 2: Convenience: Invest From Anywhere, Anytime
With bank account mandates, your location is no longer a barrier to investing. Whether travelling, at work, or simply relaxing at home, you can rest assured that your investments are handled automatically.
Reason 3: Disciplined Investing: The Key to Long-Term Success
You need to maintain discipline when it comes to mutual funds investing. It’s easy to get sidetracked by market fluctuations or short-term temptations. Bank account mandates act as a commitment device, encouraging you to invest regularly, regardless of market conditions. This consistent approach is crucial for achieving your long-term financial goals.
Essentially, bank account mandates take the hassle out of investing, allowing you to focus on the bigger picture. They are a testament to how technology can simplify our lives and help us to make smart financial decisions.
How do Bank Account Mandates Work with MF Apps?
Most leading mutual funds apps in India have integrated bank account mandate functionality into their platforms. This allows you to seamlessly set up, manage, and modify mandates directly through the app.
Did you know that mutual funds apps like Kuvera will guide you through the process of creating a bank account mandate while setting up SIP?
In Kuvera, the steps typically involve:
Step 1: Selecting your bank
Choose your bank from the list of supported banks.
Step 2: Authentication
You’ll be redirected to your bank’s secure portal to authenticate the mandate using your net banking credentials or debit card details.
Step 3: Setting mandate details
Specify the maximum amount that can be debited, the frequency of the debit (monthly, quarterly, and more.), and the start and end dates (if applicable).
Once the mandate is set up, the MF app will automatically communicate with your bank to process the debits on the scheduled dates. Like automation in mutual funds, add a ‘sit-back-and-relax’ flavour to your mutual funds investing with passive funds. You can learn more about passive funds from here.
Types of Bank Account Mandates
There are two main types of bank account mandates used in mutual fund investing:
1. One-Time Mandate
Authorises a single debit from your account for a specific amount. This is typically used for lump-sum investments.
2. Recurring Mandate
Authorises multiple debits from your account at regular intervals. This is commonly used for SIPs.
Benefits of Using Bank Account Mandates with MF Apps
MF apps have truly streamlined the process of setting up and managing bank account mandates. They offer a seamless, user-friendly experience, allowing you to complete the entire process without leaving the app. Imagine this: you can link your bank account, authorise the mandate, and set your investment preferences, all within a few taps on your smartphone. This integration eliminates the need for cumbersome paperwork or visits to the bank, making investing more accessible and convenient than ever before.
Beyond convenience, MF apps prioritise security. They employ robust authentication methods, such as encryption and two-factor authentication, to safeguard your sensitive bank information. With this knowledge, you can rest assured that your financial data is protected. Moreover, you gain real-time visibility into your mandates and investments, allowing you to track your progress and make informed decisions.
And if your financial situation changes, you have the flexibility to modify or cancel your mandates instantly, all within the app. This level of control and transparency empowers you to stay on top of your investments and adjust your strategy as needed.
Key Considerations When Setting Up a Bank Account Mandate
1. Mandate Limit
Know the maximum amount you can authorise for a single debit or recurring mandate. This limit may vary depending on your bank and the MF app you’re using.
2. Mandate Processing Time
A mandate usually takes a few days to become active. Factor this in when setting up your SIP or making a lump-sum investment.
3. Sufficient Funds
Ensure you have sufficient funds in your account on the scheduled debit date to avoid penalties or failed transactions.
4. Mandate Cancellation
If you need to cancel a mandate, do so well before the next scheduled debit.
Bank Account Mandates: A Secure and Efficient Way to Invest
Bank account mandates have revolutionised how people invest in mutual funds in India. By automating your investments, you can ensure consistency, discipline, and convenience. With the integration of mandates into MF apps, managing your investments has become easier than ever.
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By understanding the ins and outs of bank account mandates, you can make the most of your mutual fund investments and pave the way for a secure financial future.
Wrapping Up
In conclusion, the bank account mandate is a powerful tool for mutual fund investors in India. By automating your investments through your preferred mutual fund’s app, you can ensure consistency, discipline, and convenience. MF apps in India increasingly incorporate mandate functionality, making managing your investments more efficient and secure. Embrace this technology to simplify your investment journey and pave the way for a financially secure future.
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