Beginning from March 2016, investors in Systematic Investment Plans (SIPs) of Mutual funds can use the National Automated Clearing House (NACH) system for SIPs every month in place of Electronic Clearing Service (ECS), which was earlier the norm.
How the NACH Works?
The National Automated Clearing House System allows you to invest in mutual fund through the SIP. First you have to make a one time registration, with your registered folio and the amount that you wish to make as payment, towards the plan.
The registration will just be a one time process and you need to fill the OTM form and complete the process.
You need to sign the form and the signature on the OTM form, which must match your signature as in the application form.
This form should clearly mention your bank account number and other details of your bank account.
2) Why NACH is better than ECS?
Now, consider this: The National Automated Clearing House System allows you to conduct transactions in just 89 centres across India. On the other hand the NACH will cover nearly 90,000 branches. So, if you are in a smaller town and wish to give an ECS instruction, it may not be possible today.
On the other hand with the large level of inclusion in the National Automated Clearing House System, you can make payments by monthly instructions without using a cheque, even if you are in a very small town or a village.
The other advantage, of the NCAH is that it can be scaled upwards and the model is more robust. Use of manual processes and lack of standardized procedures were the other drawbacks of the ECS.
A lot of barriers will be removed with the introduction of the NCAH for mutual fund investors in March, making SIP investment very easy.
It normally would take as much as 30 days, if you wanted the ECS mandate for SIP investment to be completed. However, it could take as much as 10 days under the National Automated Clearing House System.
There will also be a positive confirmation, with regards to your application, which will ensure that you know the mandate has been accepted.
Individuals in smaller towns, who hitherto had challenges with regards to the ECS would no longer have to now worry. They can invest in SIPs using the NCAH. It is faster, convenient and would have more robust systems from place, beginning from March on wards.