NEFT

NEFT is the everyday electronic bank transfer. The workbook describes it as a nation-wide payment system facilitating to move funds electronically from one account to another.

Its defining feature is that funds are credited to the receiving account in batch processing. Instructions are collected and settled in groups rather than one by one, which is the reason NEFT is contrasted with RTGS, where each transfer moves immediately.

For a mutual fund investor, NEFT is one of the electronic payment modes in which the clearing process need not be initiated by the mutual fund at all: the investor completes the transfer himself, using the scheme's bank account details provided by the AMC, and gives the fund proof of the transfer.

The rules the workbook states:

NEFT then shows up at three points in a registrar's work.

Money in. When an investor pays electronically, the RTA reconciles the receipt of funds with the application. A mismatch makes the transaction NIGO and no units are issued. For net banking and similar modes, AMCs and payment aggregators may accept money only from banks that provide real-time account validation or a reverse feed of source account details not later than the day after payment — so the fund can prove the money came from the investor.

Pricing. For equity and debt purchases, the applicable NAV is the closing NAV of the day the funds are available for utilisation, so when the credit actually lands matters more than when the form was signed.

Money out. In corporate actions the RTA's duties include transfer of dividend through NEFT or RTGS, with payment instruments dispatched only where bank details are not available. AMCs may use RTGS, NEFT, IMPS and direct credit for redemption proceeds, IDCW and refunds.

Illustrative numbers.

Mrs Fernandes submits a purchase for Rs 1,50,000 in an equity scheme on Monday and pays by NEFT from her registered savings account. She pays no NEFT charge.

Stamp duty at 0.005% is Rs 7.50, leaving Rs 1,49,992.50 to invest. The NAV that applies depends on the day the money is available for utilisation in the scheme's account:

A one-day difference in when the credit is available costs her about 24 units in a rising market — or gains her units in a falling one. The form, the scheme and the rupees are identical.

The RTA's reconciliation is what makes either row happen. If the NEFT credit shows Rs 1,50,000 from an account registered in her folio and matches her application, units are allotted. If it had come from her brother's account and could not be verified as hers, the subscription would be rejected and refunded to the account it came from.

When she later redeems, the proceeds come back the same way — typically by electronic credit to her verified bank mandate, not by cheque.

Chapter 13 (Banking Operations in Mutual Funds) describes NEFT under electronic payments in section 13.1.1, sets its verification rules in section 13.2, and describes the RTA's reconciliation in 13.5; its sample questions test acceptable payment modes and that an outstation cheque, not NEFT, is invalid. Chapter 6 (Basics of RTAs) lists dividend transfer through NEFT or RTGS as an RTA duty in corporate actions, and its sample question answer is "all the options". Chapter 14 adds NEFT among the pay-out channels.

• NEFT is batch processing; RTGS is instant. A question asking which method moves funds instantaneously wants RTGS.
• RBI sets no amount limit on NEFT. Individual banks may.
• NEFT runs 24/7 on all days of the year — not only on bank working days.
• Charges were waived only for NEFT from savings bank accounts, from 1 January 2020.
• Paying by NEFT does not remove third-party checks. Funds must be traceable to an account verified as the investor's.
• The applicable NAV follows the availability of funds, not the time of the NEFT instruction.
• An RTA transfers dividends by NEFT or RTGS, and dispatches a payment instrument only where bank details are unavailable.