You see an IPO you like, apply through your investment app, and approve a request on your UPI app. Instantly, a specific amount in your bank account gets ‘blocked’—it’s still your money, you even earn interest on it, but you can’t spend it. If you get allotted the shares, the amount is debited. If not, the block vanishes as if it were never there.
This behind-the-scenes magic is what we’re breaking down today. We’ll explain exactly what a UPI Mandate is, answer the big question—is it free?—and show you how it’s different from your regular automatic payments.
What is a UPI Mandate?
A UPI mandate is essentially an instruction you give through your UPI app to your bank to block a certain sum of money in your account for a specific purpose. This feature is commonly used when applying for an Initial Public Offering (IPO). By approving a mandate, you are authorizing a future debit from your account, contingent on certain conditions being met.
If you are allotted shares in the IPO, the blocked amount is then debited from your account. If you aren’t allotted any shares, the hold on the funds is released, making the money available for you to use again.
How Does the UPI Mandate Process Work for IPOs?
The process for using a UPI mandate for an IPO application is simple and operates under the ASBA (Application Supported by Blocked Amount) framework. Here’s a step-by-step breakdown:
- Application: When you apply for an IPO through your broker’s app or website, you enter your UPI ID as the payment option.
- Mandate Request: Your broker sends your application to the stock exchange, which then forwards a mandate request to your bank via the National Payments Corporation of India (NPCI).
- Approval: You will receive a notification on your UPI app to approve the mandate. You’ll need to verify the details and authorize the transaction using your UPI PIN.[2] It’s crucial to approve this mandate before the specified deadline, typically 5 p.m. on the closing day of the IPO, for your application to be considered valid.
- Amount Blocked: Upon your approval, the corresponding amount is blocked in your bank account. The funds are still in your account but cannot be used for other transactions.
- Allotment and Debit/Unblock: After the IPO allotment is finalized, if you receive shares, the blocked amount is debited from your account. If you do not receive an allotment, the block on the funds is removed.
ASBA is a process developed by the Securities and Exchange Board of India (SEBI) that lets you apply for an IPO without the money ever leaving your bank account. Instead of paying upfront, the application amount is simply put on hold or “blocked.” This is a win-win for investors, as you continue to earn interest on the blocked funds, and it makes the entire IPO application process safer and more efficient.
Are UPI Mandates Free or Charged?
For the most part, setting up a UPI mandate for an IPO is free of charge. Banks and the NPCI do not typically levy any fees for creating a mandate. This means you can apply for an IPO using UPI without incurring additional transaction costs.
However, it’s worth noting that some platforms may deduct a nominal, refundable fee for the purpose of verifying your bank account. It’s always a good practice to check with your specific bank for any details on charges, if any.
UPI Mandate vs. UPI AutoPay: What’s the Difference?
While they might sound similar, a UPI Mandate and UPI AutoPay serve different functions.
- UPI Mandate: This is typically a one-time instruction to block funds for a specific transaction, like an IPO application. The amount is only debited if the transaction is successful. The primary purpose is to hold funds temporarily.
- UPI AutoPay: This feature is designed for recurring payments. When you set up UPI AutoPay, you authorize a merchant or service provider to debit a specified amount from your account at regular intervals (daily, weekly, monthly, etc.). This is commonly used for things like OTT subscriptions, utility bill payments, and SIPs for mutual funds. You can set a limit for the auto-debit and have the flexibility to pause or cancel it at any time.
In essence, a UPI mandate is a “block and debit later” mechanism for a single event, while UPI AutoPay is a “debit automatically on a schedule” instruction for recurring expenses.
Author
