When investing in mutual funds, setting up a mandate makes the payment process much simpler by allowing automatic deductions from your bank account for Systematic Investment Plans (SIPs). This means your investments are made on time, without any extra effort. It removes the hassle of remembering due dates and helps maintain consistent investing. To know more about how mandates work and their benefits, keep reading this blog.
What Is a Mandate in Mutual Funds?
A mandate for a mutual fund is essentially the permission that a customer grants to their bank, allowing it to make automatic debits in the customer’s bank account for investing in mutual funds. This enables orderly payments, such as those for Systematic Investment Plans (SIPs), to be automatically deducted from the bank account on the chosen dates without the need for any manual intervention.
Generally, such a mandate also specifies the debit amount, frequency, and maximum limit authorised. Mandates can simplify the investment process by making it possible to deliver payments on time and in the required amount. They can be one-time or electronic authorisations, facilitating smoother and more efficient fund contributions through a pre-approved arrangement. This automation ensures consistent and timely investing without manual effort, helping investors maintain their financial discipline and long-term goals.
Why Is a Mandate Needed for SIPs?
A mandate is essential for SIPs as it automates the investment process, as it basically allows a particular amount to be automatically withdrawn from the investor’s bank account on agreed-upon dates, thus freeing the investor from any manual work.
Through this process, it is guaranteed that SIP payments will be made without fail every month, which leads to disciplined investing, ideal for long-term wealth building, as there will be no need for manual intervention each time. Investors can thus stay committed to their investment plans by making use of a mandate, hence the chances for missed instalments will be reduced to a minimum. Besides, it also makes the investing process more efficient, and the investor can take advantage of this time-saving method.
Additionally, this tool is very effective in helping investors stick to their long-term financial objectives as it assures that the mutual fund schemes will receive the timely and regular contributions, thereby ensuring a more convenient and smooth investment journey.
Types of Mandates: eMandate vs Mandate
There are two primary methods to authorise recurring payments in mutual fund investments: the traditional mandate and the eMandate. The following table illustrates the major differences between these two types.
| Feature | Traditional Mandate | eMandate (Electronic Mandate) |
| Process | Involves physical paperwork, including submitting signed forms to the bank or fund house for approval | Digital in nature; setup completed online and authenticated via secure digital channels |
| Setup Time | May require several days or weeks due to manual checking and document handling | Setup is rapid, taking anywhere from a few minutes to a couple of days |
| Convenience | Can be inconvenient, involving in-person visits and a greater risk of manual errors | Offers ease of use, eliminating physical presence, and enabling remote setup and management |
| Flexibility | Any modifications or cancellations necessitate additional paperwork and further verification | Adjustments or cancellations can be made easily and swiftly through online platforms |
| Security | Susceptible to mistakes such as signature mismatches and manual input errors | Maintains high security standards through encryption, multi-layer authentication, and digital records |
| Acceptable Payment Methods | Direct debit from a bank account only | Net banking, debit/credit cards, UPI, Aadhaar eSign, bank account |
How to Set Up a Mandate with Your Bank
To set up a mandate with your bank for mutual fund investments, follow these steps:
- The first step is to select the mutual fund plan and come up with the amount, frequency, and starting date of the SIP.
- You need to input the details of your bank account (account number, IFSC code, and account type) on the online platform or fill out a physical mandate form.
- You have to choose the mandate limit that is the highest amount up to which the bank can automatically debit for the mandate.
- Carry out the mandate authorisation through your bank’s net banking, debit card, or UPI platform as per the method given.
- After examining the mandate details, accepting the terms, and submitting the application, the mandate is then scanned and sent for processing. Usually, the mandate is activated a few days after the application is submitted.
- Once active, link the mandate to your SIPs to automate regular payments and monitor your account for successful deductions.
This process makes the payments for your investments be done automatically, hence easy and more efficient investing for the long term.
Benefits of Using a Mandate
The use of a mutual fund investment mandate allows an investor to enjoy various benefits, which generally can lead to a more streamlined and efficient investing process:
- Convenience: Automates payments, avoiding the need for manual transactions each time.
- Ensures Consistency: By lessening the chances of a payment being skipped, it will play a role in achieving regular investments.
- Reduces the Time and Effort Consumed: Once the mandate is set, payments will be made automatically as per the schedule on the debit side.
- Flexibility: One mandate can be connected to several SIPs, i.e. an investor can have a better grip on his investments.
- Helps in Building Up Financial Discipline: Systematic investing is the key to achieving long-term financial goals.
- Enhanced Security: Mandates undergo bank verification processes, reducing risks of unauthorised transactions.
Risks & Considerations
When using mandates for mutual fund investments, it is important to be aware of potential risks and considerations to make informed decisions. Below are some of the main points to remember:
- Insufficient Funds Risk: In the event that there is not enough money in the bank account on the debit day, the transaction may fail or the account may be charged a fee due to overdraft.
- Fixed Debit Amounts: Mandates normally consist of fixed amounts that may not provide flexibility during changing financial situations.
- Bank Charges: Certain banks might charge fees for setting up or maintaining mandates that can contribute to the overall costs.
- Over-Commitment: Automated payments may affect the monthly cash flow; thus, if the income or expenses fluctuate unexpectedly, there might be a problem.
- Complexity in Managing Multiple Mandates: Tracking several mandates for various funds requires careful financial management.
- Potential Inertia: Automated investing might result in less frequent review of investments, possibly missing timely adjustments based on market conditions.
Conclusion
Mutual fund mandates provide investors with a simplified and efficient way to handle their investments, as payments can be made automatically without the need for any manual effort. They achieve this by ensuring that contributions are submitted promptly, encouraging financial discipline and offering better security. However, investors should remain aware of potential risks such as insufficient funds or fixed debit amounts. In general, mandates can support regular and hassle-free investing, thus they can be considered as a tool for achieving long-term financial goals for a smoother investment experience.
FAQs
A mutual fund mandate is a permission given by an investor to their bank on their behalf. Through this authorisation, the bank can automatically deduct a certain amount of money from the investor’s account. This allows systematic, on-time payments to be made without any manual intervention, thus allowing smooth investment transactions.
A mandate is needed for SIPs as it allows the automatic deduction of investment amounts from the investor’s bank account on scheduled dates. The automation helps in ensuring that payments are made on time, lessening the chances of missed instalments. The process becomes more convenient and efficient. It not only promotes discipline in investing but also helps in aligning the timely, systematic contributions with long-term financial goals.
In comparison to a traditional mandate, an eMandate is a digital authorisation that is completed online and allows automatic bank debits for recurring payments, with secure authentication. A traditional mandate requires physical paperwork and manual verification, which makes the process slower and less convenient.
To set up a mandate for a mutual fund SIP, the first step is choosing a mutual fund scheme. Then, the decision on the amount and frequency of the SIP is made. Next, one gives bank account details and completes the mandate form. Authorise the mandate through your bank, either online or offline. Hand in the required documents. The process is confirmed automatically, hence the mandate goes on to schedule automatic debits on the agreed dates, thus facilitating smooth SIP investments.
Some of the advantages of using a mandate are the automation of recurring payments, saving time and effort, ensuring timely transactions, reducing the chances of manual errors, improving financial discipline, and providing a secure and reliable payment method for regular investments or bills.
In a situation where a mandate has been revoked or cancelled, the SIP payments will not be automatically debited. Hence, there will be payment instalments that are not made on time. The cancellation of the SIP due to the repeated failure of the debit is likely to happen. It breaks the investor’s commitment, which, in turn, can lead to a postponement of the planned financial objectives. Besides this, the banks can also charge the customers a certain amount in the form of an overdraft fee or a penalty for failed transactions.
