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 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 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.

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.

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.