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What is NEFT and How Does it Work: The Complete Guide

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What is NEFT and How Does it Work: The Complete Guide

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In a day and age where all fund transfers are going completely electronic, it is crucial to understand NEFT, how it works, and the various advantages and disadvantages of this unique fund transfer system. Continue reading to get to know all about it. 

What is NEFT?

National Electronic Fund Transfer, also known as NEFT, was first introduced in India in November 2005. Designed to enable quick fund transfers between bank accounts, NEFT was conceptualized, operated, and regulated by the Reserve Bank of India. 

Features of NEFT 

Getting to know the various features of this electronic fund transfer method can help you understand and appreciate the system better. So, let’s take a quick look at a few of the key aspects 


Earlier, there were specific timings for NEFT transactions, which coincided with the banking hours. This meant that individuals wanting to transfer funds to another account had to do it only within the permitted time slots. However, from December 16, 2019, the Reserve Bank of India made the facility available and operational 24x7 on all days of the year in a bid to promote electronic fund transfers.

Transfer Limits 

One of the many noteworthy features of this electronic fund transfer is that it has no maximum transfer limit. This effectively means that you can transfer any amount that you wish between two bank accounts. However, to prevent misuse, banks have chosen to impose upper limits on NEFT transfers that can be made on a day. This cap on the maximum amount of transfer varies from one bank to another. 


The Reserve Bank of India made both NEFT and RTGS completely free of charge from January 01, 2020. That said, certain banks have chosen to levy a small fee for account transfers made via this facility. The charges levied for an NEFT transfer are based on the amount being transferred and can range anywhere from Rs. 2.5 to Rs. 25, excluding GST. 

How Does it Work? 

Now that you’ve taken a good look at the features of this electronic fund transfer system, let’s take up an example to try and understand how NEFT works. 

Say that you have a savings bank account with HDFC Bank. You wish to transfer a sum of Rs. 1.5 lakhs to your friend who has an account with ICICI Bank via NEFT. Assume that you have already added your friend’s bank account as a fund transfer beneficiary through your internet banking portal. 

Now, say that you place a request online for transferring an amount of Rs. 1.5 lakhs from your account to your friend’s bank account at around 10.05 AM. Since the Reserve Bank of India would only process NEFT requests every half an hour and in batches, your request for fund transfer would only be taken up for processing at 10.30 AM. This effectively means that the funds will only be transferred to your friend’s account after 10.30 AM. 

Now, although the exact time taken to settle the transfer request may vary from time to time, fund transfers through NEFT usually don’t take more than 2 hours from the time you initiate the transaction. 

What are the Advantages and Disadvantages of NEFT? 

Now that you know how this fund transfer system works, let’s quickly go through the various advantages and disadvantages of NEFT. 

Advantages of NEFT 

  • NEFT transactions are very economical since banks charge little to no fees.
  • Since it is managed by the Reserve Bank of India, the National Electronic Fund Transfer system is very secure. 
  • NEFT is much faster than more traditional methods of fund transfers. 
  • NEFT transactions can be initiated from anywhere in the world and at any time of the day. 
  • Fund transfers can be made from and to any bank account in India as long as they are NEFT-enabled. 
  • In addition to fund transfers between bank accounts, NEFT can be used to also pay credit card dues and loan obligations. 
  • NEFT transactions can be initiated online as well as offline by visiting the nearest bank branch. 

Disadvantages of NEFT 

  • Fund transfers via NEFT are not processed in real-time like IMPS transfer are. Instead they are only done in batches every half an hour. Sometimes it might take a bit longer for this as well.
  • To initiate an NEFT transaction online, the individual needs to be registered for internet banking. Moreover, one has to add the transferre’s details and register them as a beneficiary. This might take upto a day.


With this, hope you’re now aware of the meaning of NEFT and how the fund transfer system works in reality. Now, as with any other technological invention, there are a couple of disadvantages of NEFT. However, as it is evident from the above, the benefits far outweigh its drawbacks, making it one of the best ways to transfer funds to other bank accounts.  

Frequently Asked Questions

1. Who can make NEFT transactions?

Any individual who has a bank account can initiate an NEFT transaction to transfer funds electronically to another bank account. 

2. What is the difference between NEFT and RTGS?

The primary difference between these two types of fund transfer systems has to do with the time it takes to transfer the funds from one account to another. 

With NEFT, the fund transfer requests are processed every half an hour in batches. Therefore, there’s usually a slight delay in the transfer of funds. 

With RTGS, on the other hand, the fund transfer requests are processed individually and instantly. This means that the funds are transferred instantly to the recipient’s bank account.

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