Are you looking for a hassle-free way to manage your Systematic Investment Plan (SIP) investments in mutual funds? The One Time Mandate (OTM) is here to simplify your financial journey! OTM in mutual funds is a hassle-free authorisation that allows automatic SIP deductions, saving you time and effort. Whether you are a seasoned investor or just starting, understanding OTM can simplify your financial journey.
Want to know how it works, its benefits, and how to set it up? Keep reading to explore everything about OTM in SIPs!
Understanding One Time Mandate (OTM) in SIP
OTM is a simple payment instruction that enables investors to make SIP payments automatically. In this system, you permit the bank to debit a fixed amount from your account periodically by subscribing to OTM without the hassles of making manual payments every month.
The major benefit of OTM is that it ensures you never miss a SIP payment and helps you to remain consistent with your investment. In addition, you can easily register for SIPs, as the process is safe and can be used for multiple SIPs if the total investment is within the specified limit. OTM minimises the opportunity for payment failures, allowing for smooth transactions.
Knowing what is one time mandate will encourage financial responsibility and make investing easy to manage by making SIP payments automatic. Whether you are an investor or a beginner, opening an OTM can make investing in mutual funds more systematic.
Requirements for Registering an OTM
Investors must provide certain information to facilitate smooth and secure transactions about their SIPs to register for an OTM. Here are the requirements for starting this process:
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Bank Account Information
Investors must provide their account number, bank name, branch, account type, and IFSC code. An OTM can be linked to only one bank account, so it is crucial to choose the desired account.
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Investor Information
Personal information, such as name, PAN number, registered address, email, and mobile phone number, has to be furnished. In the case of a joint account, details of the joint holders shall also be furnished.
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Mandate Specifications
Investors should specify a mandated limit, i.e., the highest amount that can be debited using OTM. Any transaction above this will be declined. Additionally, the time validity of one time mandate in mutual fund should also be defined for a fixed period or until cancelled.
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Investment Portfolio Details
Information like folio number or application number and AMC name are needed.
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Signature Verification
The signature(s) should be the same as in the bank’s records.
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Authentication Amount
For online OTM registration, a ₹1 transaction is made to authenticate the bank account, which is refunded if the validation is successful.
Working of One Time Mandate (OTM)
An OTM is a smooth method of handling regular payments by making it automated. You instruct your bank to deduct stated amounts from your account at intervals of your choice, for example, every month, to invest in your SIPs. Since it is automated, there is no need for manual intervention every time.
The process is safe, with minimal chances of delayed payments or defaults, encouraging disciplined investing. To open an OTM in mutual funds, you simply fill in the mandate form correctly and submit it to your bank, indicating the maximum debit amount and frequency. For instance, if you have a SIP of ₹1000, initiating an OTM will deduct this amount every month on the same day.
Major Advantages of Using One Time Mandate (OTM) for SIPs
OTM removes the requirement for repeated manual interventions, thereby being an easy, secure, and effective solution. Here are the most important advantages of using OTM for your SIP investments:
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Time and Effort Savings
Understanding what is one time mandate in SIP makes payments automated, saving you the trouble of keeping track of due dates or having to start manual transactions. This way, you get to focus on other crucial tasks while letting your investments run smoothly.
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Economically Viable Solution
With OTM, your chances of missing or delaying payments decrease substantially, saving you from late fees or penalties. Still, it is important to have enough funds in your bank account ahead of the payment date to cause no inconvenience.
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Increased Convenience
OTM simplifies the payment process by eliminating the need to enter bank details repeatedly. Whether setting up a new SIP or managing existing ones, OTM offers a quicker and more convenient alternative to traditional offline methods.
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Quick and Easy SIP Setup
Investors can start new SIPs without submitting bank details or physical documents multiple times. This speeds up the process, making it ideal for both expert and first-time investors.
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Enhanced Security
OTM reduces the chances of data exposure and provides a safer and more secure transaction process by transmitting your bank details only once.
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Minimal Paperwork
OTM bypasses the cumbersome process of repeating documentation. So, it is an easy option to manage multiple SIPs or investments in mutual funds.
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Effortless Management of Investments
With OTM, you can handle all your mutual fund transactions from one place, giving you greater organisation and control over your investments.
Set Up One Time Mandate (OTM) for SIP
Setting up an OTM ensures seamless and automated investments in Systematic Investment Plans (SIPs). This one-time registration allows a mutual fund company to debit a predetermined amount from your bank account on a set frequency. Additionally, OTM is valid for multiple SIPs under the same asset management company, reducing the need for repeated authorisations.
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Ways to Set Up OTM for SIP
- Through the NACH Mandate Form
You can set up an OTM by filling out the NACH (National Automated Clearing House) mandate form, available on the fund house’s website. The form requires:
- Bank details: Account number, IFSC code, and bank name.
- Personal details: Name (as per bank records), PAN, registered mobile number, and address.
- Investment details: SIP amount, frequency (monthly, weekly, or quarterly), and mandate limit (higher than SIP amount to allow future increases).
- Duration: Choose a fixed tenure or ‘until I stop’ option.
Once completed, sign and submit the form online or offline, along with a cancelled cheque. Activation typically takes up to 10 days.
- Through E-NACH
E-NACH is a paperless and faster alternative where you register the mandate online via net banking or a debit card. This process takes 2-3 days, depending on your bank.
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Automating Your SIPs
You can automate SIPs through:
- UPI Autopay: Linking your UPI ID to your investment account for auto-debits (with a lower mandate limit than bank mandates).
- Bank Mandates: Authorising automatic deductions on scheduled SIP dates.
By setting up OTM, investors can save time, reduce paperwork, and ensure disciplined investing without worrying about missed payments.
Common Issues and Solutions for One Time Mandate (OTM) in SIP
Using an OTM can be useful for investors in regulating systematic payments for mutual funds. However, they can face the following common issues and troubleshoot:
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Fixed Debit Amounts
You will have fixed debit amounts using an OTM which cannot be changed according to your financial situation. So, you can stop the OTM or modify it to overcome a financial crunch. However, the process may not be instant.
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Managing Multiple OTMs
Managing multiple OTMs for multiple mutual funds can be complicated. Troubleshooting this issue requires you to track different debit dates and ensure there are adequate funds in your bank account.
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Bank Charges
Many banks charge a fee for setting up this automatic payment system in any payment including mutual funds. Try not to set up multiple OTMs which can add up to increased platform charges from your bank.
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Overdraft Risk
If you do not have sufficient funds in your bank account on the day your OTM is scheduled, there is a risk of incurring an overdraft fee. Therefore, maintaining sufficient funds in the bank account which has OTMs is essential to avoid this issue.
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Reduced Flexibility of Investment Strategy
Sometimes when all your investments are automated, there is a tendency to not regulate or update the investment as per the market movements. In this case, you need to periodically check the market conditions and revise your investment decisions for maximum benefit.
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Impact on Cash Flow
If you have fluctuating expenses, then having too many OTMs can hamper your financial management and negatively impact your cash flow. So, you need to carefully manage your expenses and investments and set up strategic mandates to avoid liquidity issues.
Final Thoughts
Overall, knowing what is a one time mandate in mutual funds will be valuable for mutual fund investors to maintain consistency and convenience in their investment strategy. Also, this automatic investment process will make you a disciplined and regular investor which can reap benefits in the long run. However, being aware of the associated common issues with OTM can help you avoid them and make informed investment decisions.
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