Leveraging One Time Mandate for enhanced mutual fund performance

Investing in mutual funds through the Systematic Investment Plan (SIP) route can be a suitable way for retail investors to accumulate long term wealth. The introduction of the One Time Mandate (OTM) facility has made SIP investments even more convenient and efficient. OTM helps investors set up SIP once and then forget about remembering to invest every month.
This article explores what is OTM and how it can help mutual fund performance.

• Table of contents

1. What is One Time Mandate (OTM) in mutual funds?
2. Benefits of OTM
3. How does OTM in mutual funds work?
4. OTM for enhanced mutual fund performance
5. How to register for OTM?

What is One Time Mandate (OTM) in mutual funds?

A One Time Mandate (OTM) is a facility provided by the Reserve Bank of India (RBI) that allows an investor to register for a one-time authorization, which can be used by the Asset Management Company (AMC) to request periodic payments like SIP instalments, lumpsum purchases, etc. from the investor's bank account.

OTM is an automatic payment processing system implemented by the National Payments Corporation of India (NPCI) that eliminates the need for manual intervention like submitting cheques or fund transfer instructions every time an investment is made.

Once an investor authorizes the OTM - either physically or online - the AMC gets a standing instruction from the investor to deduct a specified amount at regular intervals for investing in mutual funds.

Benefits of OTM

Convenience: With OTM, investors don't need to go through the hassle of providing multiple post-dated cheques or remembering to make manual payments for every SIP instalment. The payments happen automatically on the designated date.

Efficiency: OTM makes investing in mutual funds seamless and efficient. There is no paperwork involved and transactions are processed faster without manual errors.

Flexibility: OTM can be used for a variety of transactions like SIP investments, lumpsum purchases, etc. Investors can choose to change the tenure, amount, date etc. anytime as per their requirement.

Reliable: OTM ensures timely payments and prevents defaults on SIP instalments due to forgotten payments etc. This brings discipline to investing.

Secure: NPCI follows a highly secure encryption methodology for auto-debit transactions. Investor bank account details are kept completely confidential.

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.

Conclusion

One Time Mandate provides mutual fund investors with a cost-effective, secure, and hassle-free method for automated periodic investments. By doing away with manual processes and paperwork, OTM allows systematic and uninterrupted investing that enhances fund performance. Investors should proactively leverage this facility to achieve their financial goals. As mutual fund penetration increases, OTM is poised to become an indispensable part of the investment process.

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.