All You Need to Know About OTM In Mutual Funds

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.

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 cancelled cheques, taking almost a month to set up.

How to register for an OTM

Investors can register an OTM online or through a physical form. The exact journey may vary across banks, Asset Management Companies (AMCs) and Registrar & Transfer Agents (RTAs), but it generally involves the following steps:

1. Choose a registration method: Register online through the AMC or RTA portal, submit a physical OTM form at an Investor Service Centre, or request registration while setting up a new SIP.
2. Provide the investment details: Enter details such as the mutual fund folio number and the name of the first or sole investor, wherever applicable.
3. Enter the bank account information: Provide the account number, bank name, branch, IFSC code and account type. The bank account should generally be registered against the investor’s mutual fund folio.
4. Set the mandate instructions: Specify the maximum amount that may be debited, the transaction frequency and the mandate’s validity period. The mandate limit is only a ceiling, so this entire amount will not be deducted each time.
5. Authorise the mandate: For online registration, complete the authentication using the method supported by the bank, such as net banking, debit-card verification or OTP. For physical registration, sign the OTM form and attach a cancelled cheque or other required bank-account proof.
6. Submit the request: Complete the online submission or send the physical documents to the AMC, RTA or designated Investor Service Centre. The signature and bank details must match the bank’s records.
7. Wait for bank verification: The bank verifies the request before registering the mandate. If the details or signature do not match, the request may be rejected and may need to be submitted again.
8. Check the activation confirmation: The investor is generally notified after the OTM becomes active. Future SIP instalments and other eligible purchase transactions can then be debited from the registered account, provided they remain within the mandate limit.

Registering an OTM does not itself initiate a lumpsum investment. The investor must still place the purchase request, after which the authorised amount can be debited through the mandate. For a registered SIP, instalments are debited automatically on the scheduled dates.

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.

1. Open or download the form.
2. Provide details of the bank account you wish to use for auto-debits.
3. 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’.
4. Selecting this amount allows the fund house to deduct money for future transactions, including lump-sum purchases as well.
5. 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.

How does OTM Work ?

• 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.

Transactions covered under One Time Mandate in mutual funds

OTM allows investors to authorise their bank to debit their account for eligible mutual fund investments, up to the mandate limit. It may be used for:

• SIP instalments
• Lumpsum investments
• Additional purchases in an existing scheme

OTM is a payment facility, so it is not used for redemptions, switches, SWPs or STPs. The transactions supported may vary across fund houses and investment platforms. For a one-time lumpsum investment with no planned future purchases, registering an OTM may not be necessary.

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.

Benefits of OTM in mutual funds

An OTM reduces the payment-related effort involved in making regular or additional mutual fund investments:

• Faster registration: An e-mandate is generally registered more quickly than a traditional paper-based mandate, though the activation time will depend on the bank and platform.
• Fewer repeated authorisations: Once the mandate is active, investors do not need to enter bank details or approve every eligible debit separately.
• Automatic SIP payments: SIP instalments are debited from the registered bank account on their scheduled dates. This can reduce the likelihood of an instalment being missed.
• Support for multiple SIPs: A single OTM may be used for more than one SIP with the same fund house, subject to the AMC’s terms and the mandate limit.
• Convenient additional investments: Investors can use an active OTM to pay for additional lumpsums without completing a separate payment journey each time.
• Less paperwork: Electronic mandates reduce the need for physical forms, cheques and repeated signatures.

How OTM can support a regular investment plan

An OTM can make an investment plan easier to follow. Here’s how it can help investors:

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 thepower 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.

Read Also: How to add multiple bank details to your existing folio?

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.

What is the advantage of setting up an OTM for mutual funds?

An OTM (One-Time Mandate) automates investments, ensuring disciplined investing without manual effort. This consistency can optimise the benefits of regular investing. Using a compound interest calculator, you can estimate how regular investments may potentially grow over time, which can help you stay committed to your long-term goals.