OTM in Mutual Funds for SIP

Jay wants to invest Rs 10,000 monthly in a mutual fund through an SIP. However, he does not want the hassle of remembering the date and making the payment every month. What are the options with Jay in this case?

Jay can explore One Time Mandate or OTM. OTM is a perfect solution if you are also tired of managing multiple SIPs and remembering the dates. But before you use this investing feature, you must understand it. So, let us get started.

What is OTM?

The One-Time Mandate is a facility provided by banks and mutual fund houses to simplify the process of investing in mutual funds through SIPs (Systematic Investment Plans). It allows you to authorize the mutual fund company to debit your bank account for a specified amount at regular intervals without making payments for each transaction. It makes the process more efficient and convenient.

Working of OTM

Let us now look at how OTM will work in Jay's case:

• Registration: Jay will instruct his bank to set up an OTM for his SIP of Rs 10,000, which he has enrolled with a mutual fund company.
• Authorization: He needs to specify the amount he wants to be deducted for each SIP installment and the frequency (monthly, quarterly, etc.). He will put Rs 10,000 monthly (date) for his case.
• Automation: Once the OTM is activated, the bank automatically debits the specified amount from his account at each SIP installment date and transfers it to the mutual fund company for his SIP investment.

Why should SIP investors choose OTM?

Here are the top five reasons for choosing OTM for your SIPs:

Convenience and Automation: OTM automates your SIP contributions, eliminating the need to remember to initiate each installment manually. It is a huge benefit, especially for those who might forget or get busy and miss a contribution. Consistent investing is crucial for SIPs to be effective, and OTM removes that obstacle.

Encourages Discipline:   By automating your contributions, OTM fosters a disciplined approach to investing. If you do it manually, you may intentionally miss your investment to use the funds for another purpose. Once you set it up, your investments happen automatically. It ensures you stay on track with your long-term goals.

Reduces Transaction Errors: Manual payments are prone to errors, like entering the wrong amount or forgetting your bank password. OTM eliminates these risks by streamlining the process.

Potentially Lower Costs:  Some banks might charge fees for frequent online transactions. OTM reduces the number of transactions needed, potentially saving you on these fees.

Peace of Mind: The last reason but very vital. Once you know that your SIP contributions are happening automatically, it provides peace of mind. You can focus on other aspects of your finances without worrying about missed investments.

Benefits of OTM

Most of the benefits we have covered in the points above. However, there are a few more points that we would like to highlight in this section:

• Time-Saving: Investors only need to fill out the OTM form once, and it covers all future SIP transactions within the specified limit. It eliminates the need to repeatedly log into your account for all your SIPs.
• Enhanced Security: You specify the maximum debit amount and frequency, ensuring that only the authorized amount is debited from your account. The mandate must be approved by your bank, adding a layer of security and ensuring that the transactions are legitimate.
• Manage Multiple SIPs with Ease: You can manage multiple SIPs under a single mandate or create a separate mandate for each. Overall, if you have 4-5 SIPs in different mutual funds, OTM makes it easier to handle diverse investment portfolios without repetitive efforts.

How to set up OTM?

Here are the steps you can follow to set OTM on ICICIDirect:

• Go to your ICICIDirect app and Tap on 'Manage Payment Mode' from the menu.
• Select Mandate and then Click on 'Add new mandate'.
• Enter the Mandate Details - Bank account number, account type, holder name, and IFSC code.
• Tap on Proceed and click on Register Now.
• The final step would be to verify the mandate via net banking.

You can set up a new Systematic Transaction immediately after mandate registration confirmation. However, please note that the SIP/TIP Start date should be T+5 business days from the current date.

You can choose a mandate for your existing SIPs by choosing Mandate as the payment mode under Change Payment mode from the SIP Book in the Mutual Funds section.

Alternatively, you can use the offline method for mandates. In this case, a physical mandate request form needs to be submitted. The complete process takes around 21 days (including the transit time).

Before you go

OTM offers a convenient, disciplined, and secure way to manage your SIP investments. It simplifies the process and allows you to focus on your long-term financial goals. If you are setting OTM up for your SIPs, ensure you have enough funds on the SIP fund deduction day. As a good practice, it is best to set up a date a few days after your salary credit date.