OTM in Mutual Funds

by Dhanuja N. Mutual Funds Expert

The One Time Mandate or otm in a mutual fund is a payment system introduced by the National Payments Corporation of India in 2016 during the launch of the National Automated Clearing House( NACH). Through an otm, investors can issue a standing instruction to their respective banks, allowing recreating deals from their accounts. The otm became popular as it replaced the old system of the Electronic Clearing Scheme( ECS), used for recreating payments earlier. The ECS was time-consuming and needed a lot of submissions for a task to be done. So, otm in mutual funds became a much preferable option for investors.

Benefits of OTM in a mutual fund

Compared to the system of ECS, the Otm system has multiple benefits.

Hassle-free transactions: Within 2-3 days, a new mandate can be set up by an otm which means that investors can start investing in a SIP within a short period.
A paperless transaction: Compared to the traditional ECS system, otm makes the entire process paperless and dissolves the risks of rejection, unlike the ECS. After registration, an investor can start a transaction without the need to fill out endless cheques or multiple auto-debit instructions forms.
Reliable and safe: An otm transaction is a safe way to invest or start a SIP and clears bank payments manually before a particular date every month.

Registration for OTM

Registration for an otm in mutual fund can be done in two ways:

Through a physical form, the investors can fill out a “debit mandate form” from the fund house and submit it with a canceled cheque so that the fund house can verify their bank account details. This process is time-consuming and may take up to 12 days.
In the process of e-mandate, the investor must have an Aadhar card linked to their bank account. The investor must log in to the website of the fund house to register for otm. Then they have to verify their bank account by logging in to their net banking. After the verification of an Aadhar-based OTP, the investor will complete the process.

Automation of a SIP after Otm registration

After registering for an otm, the investor can use it to automate the investing process. After deciding on which mutual fund to invest in, the investor can start the SIP. A portfolio number will be provided to the investor. Then the investor can start the SIP by completing the necessary form fillup.

Conclusion

With the introduction of an out-of-the-money option or an otm in mutual funds, the process of investing in mutual funds has become faster and more convenient. Investing in SIPs can be hectic considering the fluctuating nature of the stock market. After the introduction of the otm system, investing in mutual funds has become less time-consuming and allows an investor to start a SIP in a couple of days as compared to the traditional system of ECS. This has taken the process of SIP investment to another level.

Disclaimer

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.