OTM in an SIP: An Overview
A Systematic Investment Plan or SIP is one of the easiest ways to invest in mutual funds. It offers a host of benefits ranging from compounding to rupee cost averaging. However, starting a SIP would mean that you need to regularly invest a fixed amount of money at your desired frequency for a particular tenure.
Although you can invest manually, there’s always the chance of missing a payment, which can disrupt your investment journey. This is precisely why market experts recommend setting up a One-Time Mandate (OTM) with your bank account. Wondering what an OTM is? Read on to find out all about this feature, how it works and more.
What is OTM?
A one-time mandate is a feature that mutual fund portals and Asset Management Companies (AMCs) offer. It allows you to set up a standing instruction with your bank, instructing it to credit a fixed amount (equivalent to the SIP investment amount) at regular intervals to your mutual fund SIP account.
As the name implies, OTM is a one-time registration process that you can register for at any point during your investment journey. However, if you’re interested in ensuring automated and timely investments, consider registering the mandate at the time of starting a new SIP itself.
How Does OTM Work?
Now that you’ve seen what OTM is, let’s look at how a one-time mandate works with the help of a hypothetical example.
Assume that you’re interested in investing in a mutual fund. Since your goal is long-term wealth creation, you opt to invest through an SIP. You plan to invest ₹5,000 each month in an equity-oriented mutual fund for a tenure of 10 years.
To ensure that you don’t miss out on any monthly payments, you decide to set up a one-time mandate online through your mutual fund investment platform. You instruct the bank to debit ₹5,000 from your bank account and credit the same to the equity-oriented mutual fund on the 1st of every month for 10 years. This translates to 120 months of automated payments to your mutual fund SIP account.
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Once the mandate is registered, the bank will automatically debit ₹5,000 from your account on the 1st of each month and credit the same to the designated mutual fund SIP account.
Now, it is essential to note that these automated payments will only work as long as you have enough balance in your bank account. If your account has insufficient balance, the mandate will fail and the bank may even levy a penalty. Therefore, it is crucial to ensure that your account remains adequately funded on the day of the debit.
How to Set Up a One-Time Mandate for a Mutual Fund SIP?
There are multiple online and offline ways to set up a one-time mandate for a mutual fund SIP. You can initiate a mandate from your end or the mutual fund platform or AMC’s end. Here’s a general overview of what you need to do to set up an OTM.
Setting up a One-Time Mandate Online
If you’re initiating a mandate from your end, all you need to do is log into your bank’s internet banking portal.
- Simply navigate to the mandate or standing instruction section of the portal.
- Enter the relevant details such as your registration or folio number, the bank account, the amount to be debited, the frequency and the total tenure.
- Once you’ve entered all the details, submit the mandate.
- You may be asked to verify the mandate by entering an OTP sent to your registered phone number. Once you enter the OTP, the mandate will be registered.
Note: This is simply a general overview of the process. It may vary depending on the bank with whom you have an account with.
If you’re initiating an OTM through your mutual fund investment platform,
- Simply log into the platform using your credentials.
- Then, navigate to your mutual fund investment and look for the one-time mandate option.
- You may be required to enter details like your bank, branch name, account number and IFSC, among others.
- Once you enter the required details and proceed, you will be redirected to your bank’s portal where you need to approve the request.
- The OTM will be registered once the request is successfully approved.
Setting up a One-Time Mandate Offline
Alternatively, you can also set up an OTM offline. To do this, you will need to get a physical mandate form from your bank or the mutual fund AMC, fill it up, sign and submit it.
Now, unlike online mandates which are registered and activated instantly or within a couple of days, offline mandate requests can take up to a few weeks. The time delay is a factor you need to account for when registering a one-time mandate offline.
Why Should You Set Up a One-Time Mandate?
Setting up a one-time mandate for a SIP lets you enjoy a plethora of different benefits. Here’s a glimpse of some of the key reasons why you should set up one.
1. Automated Transfers
Once the mandate is registered, the investment amount is transferred to your mutual fund SIP account automatically on the set date. This eliminates the need to manually transfer funds and significantly reduces the chances of missed payments.
2. Convenient Registration Process
The online mandate registration process is very easy and takes only a few minutes to complete. Even in the case of an offline mandate setup, all you need to do is fill out and submit a single mandate form. Also, the process is a one-time affair, meaning you don’t have to renew or reinstate registration again after a few months.
One-time mandates are a reliable way to transfer funds to your mutual fund SIP account. As long as you have funds in your bank account, chances of failure are very minimal, if not non-existent.
4. Promotes Discipline
When you automate your mutual fund SIP investments, you basically instil a sense of responsibility and discipline. This has a positive impact on your ability to achieve your financial goals.
To sum up, setting up a one-time mandate for your mutual fund SIP is the best way to ensure you stay on track. Automating your investments reduces stress and anxiety and may even lead to better management of your expenses.
However, you need to keep in mind that for automated debits to be successful, you need to maintain an adequate balance in your bank account. To reduce the chances of payment failure, consider setting a date on which you’re sure to have the requisite funds in your account.
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What happens if I don’t have the necessary funds in my bank account on the date of debit?
If you don’t have adequate funds in your account, the automated debit will fail and you will be required to manually transfer funds to your mutual fund SIP account. Also, your bank may levy a penalty for automated debit failure as well.
Do I have to renew the mandate periodically?
No. As the name indicates, OTM is a one-time process that doesn’t have to be renewed or initiated once again.
Do I need to submit any documents when registering a one-time mandate?
Yes. If you’re setting up a one-time mandate offline, you may be asked to submit KYC documents in addition to a signed mandate form. In the case of online registration, however, you may not have to submit any documentation.
Can I change the amount of investment after registering a mandate?
Most AMCs and banks don’t allow you to edit the investment amount after registering a mandate. In such cases, you will have to cancel the existing mandate and initiate a fresh request for the new investment amount. However, some banks allow you to edit the amount directly. It is best to check the terms and conditions of the SIP mandate facility offered by your banking partner.
Is there a limit to the maximum amount that can be invested via OTM?
Yes. There is a maximum investment limit. However, the limit may vary depending on the bank and the mutual fund AMC.