This is Softbank's largest investment in a single company in India. While both the companies have declined to comment on the valuation, market watchers say that the deal values Paytm at about 8 billion dollar.
The funding will help Paytm expand fast its soon-to-be launched payments bank operations as well as grow its user base and introduce more financial products for consumers.
SoftBank joins Alibaba and its payments affiliate Ant Financial as amongst the largest investors in One97 Communications which operates Paytm. Interestingly, SoftBank was an early investor in Alibaba.
"In line with the Indian government's vision to promote digital inclusion, we are committed to transforming the lives of hundreds of millions of Indian consumers and merchants by providing them digital access to a broad array of financial services, including mobile payments," SoftBank Group chairman and CEO, Masayoshi Son said.
SoftBank has committed investment of over 10 billion dollar in the Indian market. While it has pumped in close to 2 billion dollar into Indian startups like Snapdeal and Ola in last few years, it has also written off a significant portion of that on account of loss in valuation.
The fund infusion in Paytm comes at a time when SoftBank is working on a sale plan of e-commerce firm Snapdeal. SoftBank is the largest shareholder in Snapdeal, which is locked in an intense battle with Amazon India and Flipkart.
Flipkart - which is in talks to buy Snapdeal - had raised a similar amount last month, although from three investors Tencent, eBay and Microsoft.
It was dubbed the largest capital raised in the Indian internet sector. Paytm has been one of the prominent beneficiaries of the government's move to scrap high denomination notes.
Paytm has seen manifold growth in transactions on its platform as well as expansion in number of users. Paytm founder and CEO Vijay Shekhar Sharma said: "This investment by Softbank and support of the incredible entrepreneur Masayoshi Son is a great endorsement of our team's execution and vision."
The company plans to invest Rs 10,000 crore over the next three to five years to enable half a billion Indians to join the mainstream economy, the statement said. Paytm offers mobile wallet (over 220 million users) and e-commerce services and will launch its payments bank operations from May 23. It had raised USD 60 million from Taiwanese chip maker MediaTek last year.