What is OTM in Mutual Funds and How Does It Work?

OTM in a mutual fund is a registration process that allows investors to automate their mutual fund investment with just one-time registration. The investment amount is directly debited from the investor’s bank account every time during the transaction. The full form of OTM in a mutual fund investment is ‘One Time Mandate’. It helps reduce the time and effort and simplifies the investment process. Investors can understand this procedure in detail to automate their payments.

What is OTM in a Mutual Fund?

OTM is a facility that allows banks to directly debit the investment amount at the time of mutual fund investment. The OTM meaning, in mutual fund investment, is associated with authorisation provided by the unit holder to the banks. 

Investors can understand it as similar to the ‘standard instruction’ facility in banks, which deducts the monthly instalment for bank loans from the loan account. In mutual funds, investors may invest frequently through Systematic Investment Plans or SIPs. Rather than repeatedly processing the debit from a bank account, OTM allows investors to register once and deduct the prescribed amount from the bank account every time.

Features of OTM in Mutual Fund

Some of the key features of OTM meaning, in mutual fund are as follows:

• Registration: It requires one-time registration. Investors need to provide their bank details for the process.
• Secure: The direct automation with banks secures the channel of fund transfer. Moreover, the increased transparency in the statements will help track the investments.
• Flexible: The mandate allows investors to select the limit for transactions. Investors will receive the notification of due SIP to maintain the required balance in the bank account.
• Control and convenience: Investors have less control after registering for OTM in mutual funds. They need to maintain the required balance in the concerned bank account. However, the process is convenient to save time and effort for the investors.

How Does it Work?

As the OTM full form in a mutual fund suggests, the one-time instruction would specify an amount and a date for debiting the investment from the bank. In case the account does not have the required balance, the bank may charge a penalty. 

For example, an investor is seeking investment in a mutual fund scheme through SIP. He/She can register for the OTM facility. The person needs to provide bank details, select the mandated limit (SIP amount), and the date for debiting the SIP amount. 

Investors can also start multiple SIPs with a single OTM if they do not exceed the total limit of a mandate. Investments under different schemes can be done under one mandate.

How to Register for OTM?

Investors can follow this online process for registration through OTM in their mutual fund:

Step 1: Check the bank details and maintain the bank balance for the account investor is willing to use to deduct the funds for mutual fund investments.

Step 2: Commence OTM registration by providing the bank details and the Permanent Account Number (PAN) details.

Step 3: Set the mandate limit for investment. It helps discipline the investments.

Step 4: Sign the OTM form.

The OTM will be activated when the investor starts his first investment. 

For the offline procedure, investors can check their concerned bank branch and the Asset Management Company (AMC). A form will be provided by the AMC or bank to register for the OTM facility. Moreover, investors can cancel or stop the OTM anytime.

Benefits of Activating OTM in Mutual Fund

The one-time mandate facility can help investors in many of the following ways:

• Seamless amount transfer with just one-time registration.
• Investors will not miss the SIP payment, which otherwise can be penalised by the AMC.
• Multiple SIPs can be registered under a single OTM registration.
• It encourages disciplined investment of a specific amount suitable for an investor.
• Moreover, saving behaviour will be encouraged as the investors need to maintain the required balance in the bank account.

Conclusion

OTM in mutual fund investment is a procedure to link a bank account with the investment and authorise the auto-debit from the account. The meaning of OTM in a mutual fund signifies the ease of mutual fund investments. As the OTM full form in the mutual fund suggests, investors can start multiple SIPs with a single OTM registration. It can be processed online or offline. The facility helps develop a disciplined savings attitude and safeguards from any failure in the SIP payment.For more insightful information about mutual fund aspects, log in to PowerUp Money or download its financial management app today!