A mutual fund is an investment vehicle where money is pooled from multiple investors with similar financial goals. The funds are managed by professional fund managers who use the money to purchase a variety of securities, such as stocks, bonds, debt instruments, etc.
Mutual funds offer benefits like diversification, professional management, and liquidity, making them a popular choice for those looking to invest in the stock market without the time or expertise to pick individual stocks. The returns generated by these investments are then distributed among the investors based on their initial contributions. In India, mutual funds are regulated by the Securities and Exchange Board of India (SEBI). The fund manager is legally obligated to act in the best interest of the investors but the returns are dependent on the fund’s profitability.
The income generated by the securities in the fund’s portfolio is distributed among the investors in monetary compensation or as capital to reinvest in additional shares. The total returns are calculated over a specific period, usually one, five, or ten years from the fund’s inception. Investors also have the option to sell their share of the mutual fund when the share’s value increases. However, it’s important to note that mutual fund investments are subject to market risks.
Several features of a mutual fund are built to make the investment process simpler and more efficient for users. One such feature is the One Time Mandate (OTM) in mutual funds. Let us understand more about OTM and its role in the mutual fund ecosystem.
What is One Time Mandate (OTM)?
Investing in mutual funds online can be a simple and efficient process, and One Time Mandate makes it even easier. It is a one-time registration process for mutual fund investors. It allows the investor to authorise their bank to execute debits to their account for a specified limit based on requests from the mutual fund company. The Asset Management Company or registrar will then forward debit requests to the bank on behalf of the investor for lumpsum or SIP purchases in a mutual fund scheme. These debits are processed through the National Automated Clearing House (NACH) system.
Once the investor has decided on a fund to invest in, the rest of the process is just a few clicks away. The OTM process streamlines the investment process and eliminates the need for multiple transactions and signatures.
OTM in mutual funds enables users to initiate both SIP and lump sum transactions. However, the daily total transaction volume will have to fall under the upper limit specified in the OTM.
What do you need to register for OTM?
Account details: Bank account details, such as the account number, bank name and branch, account type, and IFSC code, must be provided. Only one bank account can be registered for the OTM.
Investor data: Personal information, including the investor’s name, PAN number, registered address, email, and mobile number has to be submitted. If the bank account is held jointly, the details of the other account holders must also be provided.
Mandate specifications: A mandate limit is the upper limit for transactions through the OTM. Any transactions exceeding this limit will be rejected. The period of validity for the OTM must also be specified. This can be the timeframe of the investor’s choice or set as the default period of December 2099. You can even choose the “until cancelled” option.
Portfolio details: Investment details, including the folio number or application number and the asset management company name is required.
Signature: The signature(s) of the investor and any other account holders, if applicable, must match the signature(s) registered with the bank account.
Moreover, if the OTM registration is done online, the bank account is validated by a Re. 1 payment transaction, which is refunded upon successfully validating the bank account. This ensures that the applicant is authorised to make transactions on the bank account through net banking credentials.
Advantages of One Time Mandate in Mutual Funds
There are several benefits of OTM in mutual funds. Here’s a quick look at some of them:
Saves time: OTM saves a lot of time as it eliminates the need for investors to authorise each transaction individually. Instead, OTM in mutual funds enables a one-time limit for debits to be made from the investor’s bank account. This can save time and reduce administrative burdens for investors.
Additionally, as OTM transactions are processed in real-time, the mutual fund company receives the funds quickly. This allows the mutual fund company to allocate units to the investor on the same day of the transaction, as they can only do so once the funds have been credited to their account. This feature of OTM helps to streamline the investment process and makes it more efficient for investors.
Cost-effective: OTM eliminates the need for cheques, DDs and other physical transactions, reducing the costs associated with these traditional investment methods.
Flexibility: Investors can use OTM to authorise transactions for a specific limit and timeframe. This gives them more autonomy over their investments. That’s not all – investors can register more than one SIP under the same OTM. But the aggregate value of all the registered SIPs cannot exceed the specified upper limit of the mandate.
Security: OTM transactions are processed through the National Automated Clearing House (NACH), which is a secure and reliable system for electronic transactions. Additionally, OTM transactions are tracked and recorded, which provides a clear record of the transactions and enables easy tracking of the investments.
Bottom line
OTM is a valuable tool for mutual fund investors, allowing them to make transactions without needing continuous authorisation. By providing the required details, including bank account information, personal details, and a mandate specification, investors can set up an OTM and make transactions without going through the authorisation process repeatedly. This can save time and effort for the investor and make the investment process more efficient.
Additionally, OTM is a secure and reliable method for mutual fund transactions. It requires the investor’s signature and validates the bank account through a payment transaction, ensuring that only authorised individuals can make transactions on the bank account. OTM is a convenient and secure option for mutual fund investors looking to streamline their investment process.
Disclaimer: This blog has been issued on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this document is for general purposes only and not a complete disclosure of every material fact. The information/data herein alone is not sufficient and shouldn’t be used for the development or implementation of an investment strategy. It should not be construed as investment advice to any party. All opinions, figures, estimates and data included in this blog are as on date. The blog does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. The statements contained herein may include statements of future expectations and other forward-looking statements that are based on our current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Readers shall be fully responsible/liable for any decision taken on the basis of this article.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
