Bank mandate
The record of the bank account linked to an investor's trading, demat or mutual fund folio, used to move money in and out of investments; changed by submitting a form with a cancelled cheque.
In plain language
Every investment account needs a bank account attached to it, so money can flow in when the investor buys and flow out when the investor sells or redeems. This linked bank account record is called the bank mandate.
It is not fixed forever. An investor may need to add a new bank account, or remove one, perhaps because an old account was closed, or a new one was opened specifically for investing.
How it works
For a trading or demat account, changing the bank mandate means filling in a form giving the new bank's particulars, along with a cancelled cheque to confirm the account details. A broker may allow multiple bank accounts to be linked to one trading account, but one of them is always designated the main account, to which payouts on withdrawal are sent.
Mutual funds follow a similar process for a folio: multiple bank accounts can be linked, since the payment for a purchase has to come from one of the linked accounts, but again one account is designated as the main account for dividends and redemption proceeds. Adding or removing a bank account from a folio requires the relevant form, along with a cancelled cheque of the account being added.
A worked example
Naveen has a mutual fund folio worth Rs 6,00,000 with State Bank of India listed as his bank mandate. He switches his primary banking to HDFC Bank and wants redemption proceeds to go there instead.
He fills in the fund house's change-of-bank-mandate form, attaches a cancelled cheque from his new HDFC Bank account to confirm the account number and IFSC code, and submits it. Once processed, HDFC Bank becomes his designated main account. A week later, Naveen redeems Rs 1,50,000 of units, and the money lands in his HDFC account within 3 working days — his old SBI account, meanwhile, can stay linked as a secondary account or be removed entirely, depending on what Naveen requests.
Why NISM asks about it
Chapter 17 (Operational Aspects of Investment Management), section 17.7.6, 'Addition or deletion of a bank mandate', sets out the forms and the cancelled-cheque requirement for both trading or demat accounts and mutual fund folios. Expect a question on what document is required to change a bank mandate — a cancelled cheque, alongside the prescribed form.
Common exam traps
- A cancelled cheque is required to confirm the account details on any bank mandate change — this is a recurring, testable fact.
- Multiple bank accounts can be linked to one trading account or one mutual fund folio, but only one is ever the designated main account for payouts at any given time.
- A bank mandate covers where money moves, not who owns the investment — changing it does not change the registered holder of the account or folio.
Where this is taught
Free preparation for NISM Series X-ARelated terms
- CeFCoMThe Centralized Fee Collection Mechanism, managed by BSE Limited, an optional SEBI-recognised channel through which a client can pay an Investment Adviser's fee, instead of paying the adviser directly.
- ChequeA bill of exchange drawn on a specified bank and payable on demand rather than at a future date, defined under Section 6 of the Negotiable Instruments Act, 1881, and including its electronic image and electronic form.
- Invoking a lienThe lender selling or redeeming the securities marked under its lien and taking the proceeds — the securities are never transferred into the lender's own name.
- MICR codeThe 9-digit Magnetic Ink Character Recognition code printed on the MICR band of a cheque, identifying the bank branch: 3 digits for the city, 3 for the bank and 3 for the branch.
- Mode of operationHow a jointly held investment may be transacted — jointly, or on an either or survivor basis — chosen at application and recorded in the folio along with the order of holders.