What is NACH Form and it benefits in investing in Mutual Fund SIP?
To invest in mutual funds through SIP, earlier, one had to fill the ECS form. Currently this is being replaced with NACH Form. NACH is an instruction given to bank by investors to make payment to specific institutions. It includes payment towards Mutual Funds SIPs, insurance premiums, credit card payments, etc., What is this NACH Form? What are the benefits of NACH form for investors investing in mutual funds SIP? How to do NACH registration?
How ECS is replaced with NACH?
National Automated Clearing House (NACH) payment system is replaced with ECS w.e.f. 1-May-2016. NACH would work for multiple transactions and is efficient compared to ECS, NEFT or RTGS. If you are investing in mutual funds through SIP other than through web portals (like funds India or icicidirect), by directly interacting with Mutual fund AMC’s, you need to understand about NACH as it affects your mutual fund SIP investments.
How do NACH Works exactly for Mutual Funds SIPs?
- NACH form contains instructions for payment to mutual fund AMC, upto specific amount and for a frequency (monthly or quarterly or yearly).
- Mutual Fund houses take signature on NACH form from mutual fund investors.
- Mutual fund houses to submit these documents to banks.
- Banks would submit these documents for verification with National Payment Corporation of India (NPCI).
- NCPI would verify and confirm to banks.
- Mutual fund houses are now authorized to take payments from the investors towards investment in mutual funds through SIP.
How to do NACH registration?
- The investor need to submit NACH OTM form signed copy to Mutual Fund houses where they are investing through SIP’s.
- Separate forms need to be submitted for each and every portfolio with mutual fund houses. E.f. If you have a portfolio with HDFC MF AMC and ICICI Pru AMC, you need to submit 2 forms in total.
- The investor need to submit the OTM form along with cancelled cheque.
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Is it mandatory to do NACH registration?
- No. If you gave an ECS mandate for your mutual funds transactions, it would continue till it expires.
- If your ECS has come to an end, you cannot renew it. Instead, you need to submit NACH form.
- Any new instruction given would be through NACH form as ECS has gone away.
- You can give NACH for a fixed amount and cancel it any time by submitting NACH cancellation form.
What are the benefits of NACH form?
- NACH is a one time registration process which allows an investor to make lump sum or SIP investments in mutual funds. By registering NACH mandate, you will authorize the relevant bank for a registered mutual fund portfolio to debit upto a certain amount per day, towards investment in a mutual fund scheme of the fund house. This mandate can either be given for a fixed period (say one year) or perpetual till you cancel it. One mandate works for one folio in the fund house.
- If you have SIPs in different fund houses, you have to fill separate NACH forms.
- Currently with ECS, the registration time is taking up to 30 days. With NACH form, it would just take 15-20 days. You can quickly start investing in mutual funds through SIP with NACH mandate.
- Once you register with NACH, you can start investing in offline or online via a payment gateway without further documentation.
- You can instruct payments for mutual fund SIP, lump sum investments in mutual funds, regular insurance premiums, payment of credit card, electricity bills etc.,
Sample NACH Form is shown below
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What is NACH Form and how it benefits in investing in Mutual Fund SIP