OTM in Mutual Funds: Simplifying SIPs & other benefits

Mutual funds have become a significant investment avenue for individuals seeking financial growth and long-term wealth creation. Mutual funds offer a diversified portfolio of assets to both seasoned and new investors. 

However, investors were compelled to execute each mutual fund transaction manually, leading to delays and missed investment opportunities. The one-time mandate (OTM) simplifies repetitive and time-consuming payment approval processes.

What is OTM in Mutual Funds? OTM simplifies and automates mutual fund investments. With an OTM, investors permit their banks to debit funds for mutual fund investments without repeated approvals. An OTM ensures a hassle-free investment channel for regular contributions like Systematic Investment Plans (SIP). 

In this article, we will understand OTM’s full form, meaning, and advantages of the automated system. We will also elaborate on how to set up an OTM to make things easier for a mutual fund investor. 

OTM’s Full Form

OTM’s full form, from the mutual funds perspective, is One Time Mandate. Investing in mutual funds becomes easier when an investor registers for OTM. 

• When you register for an OTM, you permit your bank to debit and transfer the funds that the mutual fund firm requests from your savings account.
• When an investor makes a transaction to purchase SIP or lumpsum units in a mutual fund, the asset management or mutual fund company forwards a debit request to the bank. 
• The bank deducts the specified amount and sends it to the mutual fund or asset management company. The investor can set the maximum limit for funds transfer.
• The debit is done through the National Automated Clearing House (NACH). 

What is OTM in Mutual Funds? 

OTM is a convenient option for investing in mutual funds. It requires a one-time registration or activation.  

• It is similar to the standing instructions and helps to transfer predetermined amounts to your mutual fund company. 
• A one-time registration ensures that your funds move to your mutual fund without the need to remember or intervene every time you want to invest. 
• OTM is a favoured method of investment in SIPs. With SIP, you invest a predetermined sum in mutual funds periodically. With OTM, you avoid the hassle of regular manual transfers.
• You can permit the bank to execute such transfers for a set period. The OTM remains active till you cancel it. 
• An investing firm will not proceed with your SIP investments if you do not complete the OTM registration process.

Now that we have understood OTM’s full form let us set one up. 

How Should You Register an OTM for SIP Investments? 

You can set up an OTM for your mutual fund investments in two ways. You can either do it online through the mutual fund company’s website or physically submit an OTM form to them. 

• Physical Registration

If you register physically, fill out the OTM form with the following information and submit it to your mutual fund provider.

1. Bank Account Details: Enter your bank’s name and account number. Each OTM needs a unique bank account. 
2. Personal Details: Provide the name, PAN (Permanent Account Number), registered KYC address, email, and mobile number of all account holders. 
3. Upper Mandate Limit and Mandate Period: Specify the maximum debit allowed for mutual fund transactions and the maximum period of OTM validity.

Once you fill out the OTM form, all account holders should sign before submission. 

• Online Registration 

You can use your mutual fund company’s website for online OTM creation.

• Navigate to the profile section and choose the set-up auto-pay option. 
• Choose your bank details for OTM registration. 
• Verify your bank details with an OTP. You will be directed to the bank website to verify the details. 
• Complete any other registration formalities on the mutual fund website, and your OTM is registered. 

You are all set with an OTM for your mutual fund transactions. 

How Does OTM Work? 

Now that you have set up an OTM, here is how it works. 

1. Choose the mutual fund plan you want to invest in, investment amount, and tenure.
2. For instance, you chose a SIP investment of Rs.1000 monthly for 5 years. 
3. You set up an OTM physically or online and link it to your SIP investment. 
4. You can request your bank to transfer Rs.1000 on the 5th of every month for five years or 60 instalments. The SIP investment will start on the stipulated date. 
5. Your bank will automatically debit your account and transfer Rs.1000 monthly for the SIP investment without you remembering and manually transferring the fund. 

Ensure you have enough balance in your account for the OTM to be valid. 

Benefits of OTM 

OTM comes with several advantages and helpful features  

• Easy one-time set-up for all mutual fund investments under the same folio
• You can save time as you don’t have to log in and approve payment manually
• Option to modify the amount, tenure, and frequency
• The bank will not transfer any amount higher than the specified upper mandate limit.
• The mutual fund company receives the funds almost immediately, increasing the chance of same-day unit allotment.
• With an OTM, there is a negligible chance of transaction failure, offering enhanced safety. 
• It helps you to stick to your investment plan by ensuring regular, timely investments.
• Since OTM is automated, you don’t miss out on or delay mutual fund instalments. 
• OTM registration doesn’t cost you much. Most banks offer it for free or for a minimal cost. 

The overall mutual fund investment process is simplified and hassle-free with an OTM. 

Types of Transactions through OTM

OTM transactions cover more than SIP investments. You can do several types of mutual fund investments through OTM. 

• Systematic Investment Plans (SIP): A common type of investment through OTM
• Lump Sum: This is a bulk one-time investment in mutual funds
• Systematic Withdrawal Plans (SWP): If you are in a plan with regular withdrawals, OTM can automatically redeem and credit your withdrawal amounts to your bank. 

OTM is a versatile tool that is useful in the various stages of your mutual fund investment journey- from investments to withdrawals. 

Final Thoughts 

OTM aids mutual fund investors in periodically transferring a fixed amount of money on a stipulated date without manual intervention. Experience the ease of investing in a mutual fund without repeating formalities. 

With an OTM, you bring convenience, discipline, and consistency to your mutual fund investment journey. 

Disclaimer: This information is meant to be informative. PowerUp disclaims all liability for any mistakes, omissions, or results from using this information.