Since Unified Payment Interface payments are instant, fund houses can allot units at the previous day’s fund NAV
Investing in mutual funds just got simpler. With two prominent fund houses adopting the Unified Payment Interface (UPI) as a mode of payment on their websites recently and others considering building an interface to support it in the coming days, investment in mutual funds is becoming increasingly real time and convenient.
This payment option is an addition to the existing modes of electronic payment including debit cards, NEFT and RTGS. Just like NEFT and RTGS, UPI needs internet connectivity but it can operate without internet banking.
How is it different?
Unlike in NEFT transfers, investment through UPI is done using a virtual payment address (VPA). The VPA is created when you start using the UPI app and it is linked to your mobile phone number and bank account and it acts as your identity.
To make a payment using UPI, you need to choose a scheme from the fund website using your phone and then select UPI as the payment option. Following this, the fund house will ask for your VPA. Then, you need to log on to your UPI account using your net-banking credentials or phone banking PIN. Once you authenticate your transaction, money is transferred to the fund house.
NEFT payments are not instant and typically take a day. RTGS payments are instant but require a minimum volume of R2 lakh. On the other hand, UPI payments are instant and allow a maximum transfer of R1 lakh per transaction. However, you can make multiple transactions in a day through UPI if you want to invest more.
Transacting through UPI ensures that your money reaches the fund house instantly, which it can use to allot you units at the previous day’s fund NAV. This has an advantage over transacting through NEFT through which transfers can take 24 hours to complete, which is why you’re allotted the next day’s NAV.
How to use UPI
To start with, download your bank’s UPI app from the app market place. Register with the app using your net banking or phone banking credentials and create a virtual payment address (VPA) which is as simple as creating an email id. The VPA usually looks like xyz@abcbank.
To initiate a payment to a person or business, you need to key in the recipient’s phone number or VPA, which acts as a customer identity. There’s no need for entering any other banking details such as bank account number or IFSC code to carry out a transaction. This makes the transactions secure, as no personal or financial details are stored in the phone except a list of VPAs and they cannot lead to any misuse of personal or financial information in case the phone lands in wrong hands. Also, UPI authenticates all transactions by sending a mobile PIN.
The cost associated with UPI transactions are minimal with some banks (less than the NEFT charges) and are entirely waived off in case of some. UPI allows interoperability. So, money can be transferred from one bank to another instantly. It also allows an individual to collect money from others by sending request for transferring fund.
The writer is CEO, BankBazaar