How to buy mutual funds using UPI
Investors in mutual funds can now use the Unified Payments Interface (UPI) facility to buy units. LIC Mutual Fund Asset Management Co Ltd and IDFC Asset Management Co Ltd have added UPI as an additional payment option on their websites. This is in addition to net banking and debit cards.
The UPI interface has been built by the National Payments Corp of India (NPCI), an organisation that the Reserve Bank of India (RBI) set up to unify all retail payment mechanisms under one roof, and which is effectively owned by all banks.
Like net banking, UPI, too, uses the internet to transfer money, but investors don’t need to have an internet banking facility. All they need is a smartphone (Android smartphones for now, but UPI will be available soon on iOS devices as well) and a virtual payment address (VPA).
The VPA serves as a person’s identity to transfer money using UPI. It is just their name@bank name. VPAs are attached to cellphones, which are attached to bank accounts. Once people activate the VPA address via the bank’s app on their phones, they can use UPI.
Currently, money transfer is done through the National Electronics Funds Transfer (NEFT) and Real Time Gross Settlement (RTGS) systems. But these have their drawbacks. While NEFT transfers money in batches (once in about two hours), RTGS transfers money in real time but the minimum amount required to be remitted is ₹2 lakh.
And now, people can use UPI to invest in mutual funds as well. All they need to do is to go to the fund’s website from their mobile phones, select schemes and choose UPI as the payment option.
At the moment, people can invest only up to ₹1 lakh per transaction (₹20,000 if bank accounts are not compliant with KYC norms). But they can do multiple transactions through the day. Apart from convenience, UPI comes in handy for those who want to invest in a liquid fund.
Fund houses allot units of a liquid fund only after they receive money in their bank account. Typically, this rule is applicable for all amounts in excess of ₹2 lakh, for all schemes other than liquid ones. But for liquid schemes, the rule is applicable for any amount. “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. But UPI transfer is instantaneous if the tie-up of the fund house for UPI facility is directly with the bank,” said a senior official closely involved in setting up the UPI interface at one of the two fund houses mentioned above.
When the money reaches the fund house, liquid fund units are allotted to the investor at the previous day’s net asset value.
Others, including DSP BlackRock Investment Managers Pvt Ltd and Quantum Asset Management Co Ltd, too, plan to add the UPI interface on their websites.