What is OTM in mutual funds?

Posted On: 12 April 2023

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 accounts. The introduction of an OTM has cut down the registration time for recurring payments to as little as 2-3 days.

Table of contents

What is a one time mandate?
How can an investor register for OTM?
Benefits of OTM in mutual funds
What transactions can be done through the OTM facility?
How to automate an SIP?
What are the features of OTM?
What benefits do one-time mandate features offer to investors?
How does OTM in mutual funds work?
OTM for enhanced mutual fund performance
How to register for OTM?
How can an investor register for OTM?

What is a one-time mandate?

The OTM full form in mutual funds is one one-time mandate. It is a one-time registration procedure for mutual fund investors. OTM replaced the older system of the Electronic Clearing Scheme (ECS), which was used for recurring payments in India. ECS required investors to fill in physical forms and submit multiple canceled cheques, taking almost a month to set up.

How Does OTM Work ?

Here’s how OTM works:

Authorization: The customer provides a mandate to their bank, allowing a specified entity (such as a mutual fund house) to debit a fixed amount from their account at regular intervals.

Mandate details: The mandate specifies details such as payment frequency (monthly, quarterly, etc.), the debit amount, duration, and beneficiary information.

NACH processing: The bank submits the mandate details to NACH, which then facilitates the electronic transfer of funds between the customer's account and the beneficiary's account.

Automated debits: On each scheduled date, NACH triggers the debit from the customer’s account and credits the funds to the beneficiary.

Confirmation: Both the customer and the beneficiary receive a confirmation of the transaction.

Cancellation: The customer can cancel the mandate by notifying their bank.

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.

Benefits of OTM in mutual funds

Compared to the older system of registering for an ECS, the OTM in mutual funds has multiple advantages, especially when used in an 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 funds.
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.

What transactions can be done through the OTM facility?

OTM in mutual funds allows investors to authorise their banks to debit money from their accounts for all transactions with a mutual fund house up to a certain limit. These include:

SIPs
Lumpsum investments

How to automate an SIP?

Once an investor has finalised the investment-related aspect of a SIP Investment (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.

What are the features of OTM?

Understanding the features of OTM can empower investors to make informed decisions regarding mutual fund investments. Here are the top 3 features of OTM in mutual funds:

Convenient: OTM simplifies the investment process by removing the need for investors to provide consent for each individual investment. Once the mandate is established, all the subsequent investments can be executed seamlessly. Thus, OTM in mutual fund makes the investment go into auto-pilot mode and the investor does not have to worry about manually authorising the instalment each month.

Full control: Despite the automated nature of OTM in mutual funds, investors retain full control over their mutual fund investments. They can modify or revoke the mandate based on their evolving financial goals and investment preferences. OTM is there just to allow the auto-deduction of the SIP amount from their bank account.

Completely secure: OTM is a secure facility provided by banks. Once you set up the mandate, your SIP payments will always go through on the date you chose at the time of OTM registration as long as you have sufficient balance in your account.

What benefits do one-time mandate features offer to investors?

Here are the top 3 benefits of OTM:

Time saving: OTM in mutual funds can save investors a lot of time by eliminating the hassle of repetitive authorisations. They do not even have to worry about missing payments since the OTM ensures systematic investments in mutual funds. Each instalment is debited automatically from the bank account and invested into the mutual fund.

Enhanced discipline: OTM fosters financial discipline by facilitating automatic investment in Systematic Investment Plans (SIPs) with no regular involvement of the investor. This helps cultivate a regular savings habit. Also, investors are less likely to make impulsive decisions if they have an investment smoothly going on in the background, as compared to an investment they must actively see and approve every month.

Multiple SIPs in one OTM: Investors can register more than one SIP under one OTM. The only caveat is that the total value of the instalments should be less than or equal to the OTM limit set by the investor. This makes the whole process of running multiple SIPs hassle-free.

How does OTM in mutual funds work?

The OTM facility has the following process flow:

Investors fill out an OTM form authorizing the AMC to deduct a specific amount at regular intervals from their bank account. Physical or online/e-mandate options are available.
AMC processes the mandate and registers it on the NPCI NACH platform.
On the scheduled date, the AMC raises an auto-debit request for the specified SIP instalment amount.
NPCI debits the amount from the investor's bank account and credits it to the AMC.
AMC allows the mutual fund units accordingly in the investor's account.
The process repeats on each SIP due date without further action required from the investor.

OTM for enhanced mutual fund performance

Enables disciplined investing

OTM enforces a disciplined approach towards mutual fund investing as opposed to investing in fits and starts. Automatic and timely investing ensures rupee-cost averaging and benefits of the power of compounding. This develops the overall return potential from the mutual fund.

Eliminates human errors

With the OTM process being completely automated, the possibility of manual errors is eliminated. Delays or defaults due to cheque bounces, forgotten payments, incorrect amounts etc. are avoided. This brings consistency to investing which improves fund performance.

Helps stick to long term plans

By automating the investment process, OTM encourages investors to continue their SIPs uninterrupted for the long term. This gives enough time for funds to ride out short term volatility and optimize the return potential over the long-term investment horizon.

Allows goal-based investing

OTM enables investors to plan for specific financial goals like retirement, children's education etc. by committing to regular investments for a predefined tenure to achieve the target corpus. Goal based investing helps investors stay on course with a performance-oriented approach.

Saves time and effort

The automatic nature of OTM saves a lot of time and administrative headaches for investors. There is no need to prepare multiple post-dated cheques, track NAVs for lumpsum investments, remember payment dates. By automating the investment process, OTM allows investors to focus better on fund performance.

How to register for OTM?

Registering for One Time Mandate is quick and simple:

Physical mandate: Fill out an OTM form available with the fund house and submit it along with a signed cancelled cheque at a branch or designated ISC's.

Electronic mandate: Log into your Mutual Fund account and initiate a one-time registration process online. Approve the e-mandate using Netbanking, OTP etc.

Through RTA portal: Fund houses have web portals for investors to register OTM directly without AMC intervention. An authorization process completes the mandate registration.

During new SIP registration: While filling SIP application form, provide OTM details instead of multiple post-dated cheques.

Once the OTM is registered, there is no need for further action from the investor's side.

How can an investor register for OTM?

Registering for an OTM in a mutual fund is an easy process. Here's a step-by-step guide:

Contact your bank: Get in touch with your bank and inquire about the process for registering a One-Time Mandate for mutual fund transactions.

Fill out the mandate form: Your bank will provide a mandate form. Fill in the required details accurately. This typically includes your bank account information, mutual fund folio details, and the type of transactions you want to authorise.

Submit the form: Once the form is filled, submit it to your bank. They may verify the details before processing the mandate.

Receive confirmation: After verification, you'll receive confirmation that your One-Time Mandate is active. From this point forward, your mutual fund transactions will be executed seamlessly. Remember, the process might vary slightly depending on the bank and mutual fund house, so it's always a good idea to check with both to ensure a smooth registration.

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 a mutual fund?

The OTM full form in the mutual fund is One Time Mandate.

What is the advantage of OTM 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.

How to set up an OTM in mutual funds?

Establishing a One-Time Mandate online for mutual fund investment is a straightforward process:

Login to the mutual fund house or investment platform where you want to start investing.
Go to the profile section and select the “autopay” or “set-up autopay” section.
Enter the bank account details from which you want to investment amount to be auto-debited.
Verify your bank account through debit card or net banking with OTP received on your registered mobile number.
Confirm the OTM details and complete the registration process.

Can I cancel my OTM mandate?

Yes, you can cancel it. OTM mandates give you the freedom to add multiple SIPs under one mandate and modify or cancel it based on your investment goals.

How many SIPs can be registered with one OTM?

You can register multiple SIPs with a single OTM (One Time Mandate) as long as the total investment amount does not exceed the limit set by the bank

Can multiple bank OTM registered for the same folio?

Yes, multiple bank OTMs can be registered for the same folio. Each OTM is linked to a specific bank account, allowing you to set up SIPs from different accounts within the same folio. This provides flexibility in managing investments across multiple accounts.

What is a one-time mandate in mutual fund transactions?

One-Time Mandate in mutual fund transactions is a one-time authorisation given by an investor to their bank, allowing seamless processing of mutual fund transactions without the need for repeated approvals. It simplifies the investment process by eliminating the need for manual intervention for each transaction.

How is a one-time mandate executed in mutual funds?

Once an investor registers for a One-Time Mandate, the bank is authorised to automatically debit or credit the investor's account for mutual fund transactions. This eliminates the need for the investor to approve each transaction, streamlining the entire process.

What is the difference between a one-time mandate and regular mutual fund transactions?

In regular mutual fund transactions, investors typically need to approve each transaction manually, either through physical forms or online platforms. A One-Time Mandate, on the other hand, authorises the bank to process mutual fund transactions seamlessly without the need for individual approvals for each transaction.

Is a one-time mandate available for all types of mutual funds?

Yes, a One-Time Mandate is generally available for various types of mutual funds, including lumpsum investments, SIPs (Systematic Investment Plans), and redemptions. However, it's advisable to check with your bank and mutual fund house to confirm the specific options available for your investment needs.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.