No More OTP Hassle! RBI Greenlights Hike in Transaction Limit for UPI Auto-Payments

The RBI, in its bi-monthly monetary policy meeting held on December 08, 2023, said, "The number of e-mandates registered currently stands at 8.5 crore, processing nearly Rs 2,800 crores of transactions per month. The system has stabilised but in categories such as subscription to mutual funds, payment of insurance premiums and credit card bill payments, where the transaction sizes are more than Rs 15,000, a need to enhance the limit has been expressed as adoption has been lagging."

To improve user convenience, the Reserve Bank of India (RBI) has suggested a major modification to recurring payments.

The RBI required an Additional Factor of Authentication (AFA) for processing e-mandates in order to ensure the security of digital transactions, particularly recurring online transactions. At the moment, any recurring transaction exceeding Rs 15,000/- requires AFA, which usually involves receiving an OTP (One Time Password) for authentication.

However, savings and insurance-related transactions like paying credit card bills, insurance premiums, and mutual fund subscriptions tend to account for some of the large recurring transactions.

[Read: Oops! Transferred Funds to the Wrong UPI Address? Here's What to Do]

Now, as stated above, RBI has proposed to exempt the requirement of Additional Factor Authentication (AFA) for recurring transactions up to Rs 1 lakh for subscription to mutual funds, payment of insurance premiums and payment of credit card bills.

As per the proposal, the requirement for AFA will be exempted for recurring transactions up to Rs 1 lakh for specific categories:

• Subscription to mutual funds

• Payment of insurance premiums

• Payments of credit card bills

Users who routinely use UPI for their credit card bills and SIPs will benefit from this because their monthly involvement in processing insurance premium and credit card bill payments will be eliminated as these transactions become automated.

Benefits of the Proposal:

• Eliminating the need for AFA for smaller value transactions will undoubtedly make recurring payments more convenient and less time-consuming.

• This move is expected to encourage wider adoption of recurring payments, particularly for mutual fund investments and insurance premium payments.

• Streamlining the process can potentially lead to increased efficiency for both users and payment service providers.

However, while convenience is important, security remains paramount. The RBI will need to ensure adequate safeguards with the higher limit to prevent any potential misuse or fraud. It will be crucial to raise awareness among users about the new limits and ensure they are aware of the security aspects.

[Read: 9 Simple Tips to Protect Yourself from UPI Frauds]

The RBI stated that the other existing requirements, such as pre-and post-transaction notifications, opt-out facility for users, etc., shall continue to apply to these transactions. The revised circular will be issued shortly.

Overall, the RBI's proposal to exempt AFA for recurring transactions up to Rs 1 lakh for specific categories appears to be a positive step towards enhancing user experience and fostering the digital payments ecosystem. However, careful implementation and adequate safeguards are essential to address any potential security concerns.

Additionally, it is worth noting that this is just a proposal, and the RBI will make the final decision after considering public feedback and other factors.

Moreover, RBI announced a revision on December 08, 2023, in the Monetary Policy Meeting to encourage the use of UPI in critical sectors like healthcare and education. The transaction limit for payments to hospitals and educational institutions via UPI was increased from Rs 1 lakh to Rs 5 lakh per transaction.

[Read: NPCI Unveils New UPI Features to Achieve 100 Bn Monthly Transactions]

How will this RBI proposal Impact the Mutual Fund Industry?

RBI's announcement to exempt the requirement of Additional Factor Authentication (AFA) for recurring transactions up to Rs 1 lakh for mutual fund subscriptions is expected to have a positive impact on the industry in several ways:

Eliminating the need for AFA for smaller investments will make it easier and more convenient for investors looking to set up recurring investments in mutual funds. This change is particularly beneficial for investors who make regular contributions through SIPs.

The convenience factor is expected to encourage more individuals to consider investing in mutual funds, potentially leading to wider adoption and increased inflows into the industry. Removing AFA for smaller transactions will allow for greater automation of recurring investments, leading to operational efficiencies for mutual fund companies and distributors.

The higher limit for AFA exemption specifically targets SIP investments, which are crucial for long-term wealth creation and form the backbone of the mutual fund industry. RBI's move is likely to encourage investors to increase their SIP amounts and invest for longer durations, contributing to the industry's overall growth.

[Read: How the SIP Calculator Helps You Assess Your Mutual Fund SIP Returns]

The increased ease of investment could lead to increased competition among mutual fund companies, potentially driving innovation in terms of product offerings, investor education, and technology adoption. This could ultimately benefit mutual fund investors by providing them with more choices and better services.

Now You Could Soon Start Mutual Fund SIPs With as Little as Rs 250/- Per Month...

The Securities and Exchange Board of India (SEBI) is planning to introduce Systematic Investment Plans (SIPs) for investments in mutual funds as low as Rs 250/-.

On Friday, SEBI's chairperson Madhabi Puri Buch said, "The capital markets regulator wishes to sachetise mutual fund investments and bring SIPs down from the current Rs 500, going forward". SEBI is working in tandem with mutual fund houses to bring down the minimum investment requirement under the SIPs.

SEBI further noted that smaller-range SIPs will provide a massive push to the capital markets and aid in the financial inclusion agenda.

In an attempt to tap a larger proportion of small investors, the industry is going all out with SIP investment plans starting at just Rs 100 per month for mutual funds. Additionally, investors would be in a better position to adopt 'rupee cost averaging' since the entry-level SIP of Rs 100 per month would allow contributions to be stretched out over time, lowering the average cost per unit.

The mutual fund industry has brought the micro-SIP revolution to rural India with SEBI's new intention to reduce the SIP initial investment level to Rs 250/-. This allows even a daily wage earner to engage in India's equity markets.

[Read: Begin with Minimum Investment in Mutual Funds And Watch Your Money Grow]

Furthermore, this would benefit the Indian mutual fund industry by getting micro/small investors in the fold and developing a culture of equity investing for wealth creation and accomplishing the envisioned financial goals.

SIPs in mutual funds are a great tool for financial inclusion. According to the Association of Mutual Funds of India (AMFI) data, SIP assets under management (AUM) rose from Rs 8.59 lakh crore in October to Rs 9.31 lakh crore in November 2023.

The mutual fund industry logged its highest-ever monthly investments via SIPs in November this year. Mutual fund investments via SIPs hit a historic high of Rs 17,073.30 crore, and the number of SIP accounts rose by 1.41 million to 74.41 million as of November 2023.

However, do note that while the option to start SIPs with a small amount is beneficial for accessibility, it's crucial to ensure the investment amount is meaningful and aligned with your long-term goals. It is still important to invest with caution and a long-term perspective.

Therefore, to make informed investment decisions, consider the cost of inflation, time value of money, financial objectives, risk tolerance, and, if needed, seek expert advice. The key to successful investing is adequate diversification, disciplined investing, and in-depth research.

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MITALI DHOKE is a Research Analyst at PersonalFN. She is an MBA (Finance) and a post-graduate in commerce (M. Com). She focuses primarily on covering articles around mutual funds including NFOs, financial planning and fixed-income products. Mitali holds an overall experience of 4 years in the financial services industry.
She also actively contributes towards content creation for PersonalFN’s social media platforms in the endeavour to educate investors and enhance their financial knowledge.
 

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.