How a One Time Mandate (OTM) is changing mutual fund investing
What is a One Time Mandate?
The One Time Mandate (OTM) is a payment method introduced by the National Payments Corporation of India in 2016 when it launched the National Automated Clearing House (NACH).
Through an OTM, investors can issue a standing instruction to their banks, allowing recurring transactions from their account. The introduction of an OTM has cut down the registration time for recurring payments to as little as 2-3 days.
The OTM replaced the older system of Electronic Clearing Scheme (ECS), which was used for recurring payments in India. The ECS required investors to fill in physical forms and submit multiple cancelled cheques, and took up almost a month to set up.
How can an investor register for OTM?
An investor can register for an OTM in two ways: through a physical form or an E-Mandate.
Physical form: Investors can obtain a ‘debit mandate form’ from their fund house, or take a printout of its PDF version. They will have to submit the signed form along with a cancelled cheque for the fund house to verify their bank account details. This process can take about 10-12 days.
E-Mandate: Investors must have an Aadhaar card linked to their mobile number and their bank account for the E-Mandate to work. For OTM registration, investors must log on to the fund house website, select their folio and the bank account, which they wish to use for auto-debits. They will also have to verify their bank account details by logging on to their net-banking. Post this, an Aadhaar-based OTP will be sent to the investors for authorization.
Advantages of OTM in a mutual fund:
Compared to the older system of registering for an ECS, the OTM in mutual fund has multiple advantages, especially when used in E-Mandate format.
Quick transactions: A new mandate can be set up within 2-3 days, compared to up to 30 days under ECS. As a result, investors can get started with an SIP in about 7 days, including fund selection and allocation of units.
No need for issuing multiple cheques: Under the ECS system, investors had to furnish multiple cheque leaves; a requirement that has been done away with under OTM in mutual fund.
Low risk of rejection: ECS mandates were prone to rejection due to reasons such as signature mismatch. The electronic OTM makes the process entirely paperless, ensuring a safe and convenient transaction.
How to automate an SIP?
Once an investor has finalized the investment-related aspect of an SIP (which fund to invest, the monthly amount, etc.), he/she can use OTM to automate the investing process.
Here are the steps to set up and register for OTM after obtaining a folio number from the fund house.
- Open or download the form.
- Provide details of the bank account you wish to use for auto-debits.
- Enter the amount that you want to invest through an SIP. Specify the date and frequency. This may be preset to ‘As and when presented’.
- Selecting this amount allows the fund house to deduct money for future transactions, including lump-sum purchases as well.
- Sign the form physically and send the document to the fund house or use net-banking and Aadhaar OTP to verify the transaction.
Once this process is complete, the fund house will initiate your SIP and allocate units after the payment comes through as per SEBI-indicated timelines.
Conclusion:
To sum it up, OTM in mutual fund has added an element of speed and convenience to mutual fund investing. Investing through SIPs not just inculcates financial discipline but also keeps investors from worrying about timing the stock market. Following the introduction of OTM in mutual funds, SIP investing has taken off in a big way in India.
FAQs:
What is OTM full form in mutual fund?
The OTM full form in mutual fund is One Time Mandate.
What is the advantage that an OTM has over ECS?
OTMs ensure a convenient way to register for recurring payments, allowing investors to set up SIPs in a matter of days. Under the ECS, this process could take well over a month.
Is OTM available for everyone?
The OTM service can be availed of by all existing individual and non-individual investors who have a folio number.
Can an OTM get rejected?
Yes. OTMs may be rejected for multiple reasons, such as furnishing of incorrect details. In some cases, an OTM may also be rejected if the investor’s bank does not participate in National Automated Clearing House (NACH), though this is an unlikely occurrence as the National Payments Corporation of India (NPCI) has empaneled most scheduled commercial banks.
How many SIPs can be registered with one OTM?
An investor can register as many SIPs as they wish to, as long as the overall SIP amount does not exceed the amount allowed under the mandate.
Can investors register multiple bank OTMs for the same folio?
Yes. Investors can register multiple bank OTMs under the same folio. However, they will be required to submit individual forms for each bank.
Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.
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