What is OTM mandate in mutual fund ? Why it is necessary for mutual fund ?
OTM (One-Time Mandate) in the context of mutual funds refers to a one-time authorization given by an investor to allow the mutual fund company to debit money from their bank account for the purpose of making investments in mutual fund schemes. This mandate is typically used for purchasing units of mutual funds through a systematic investment plan (SIP) or for making additional investments in existing schemes.
The OTM mandate is necessary for mutual funds for the following reasons:
Convenience: The OTM mandate eliminates the need for investors to issue separate checks or make individual transfers for each investment installment. Once the mandate is set up, the investor's bank account is debited automatically on the specified dates, making the investment process more convenient.
Regular investing: Mutual funds often encourage disciplined investing through systematic investment plans (SIPs), where investors make regular monthly investments. The OTM mandate ensures that the investor's monthly investment is automatically processed, promoting regular saving and investing habits.
Cost reduction: By enabling automated transactions, the OTM mandate reduces the administrative costs associated with processing individual payments. This helps mutual fund companies streamline their operations and offer cost-effective investment options to investors.
Avoiding missed investments: With an OTM mandate in place, investors are less likely to miss out on investment opportunities or experience delays in investing due to oversight or forgetfulness. The automatic debiting of funds ensures that investments are made on time according to the investor's instructions.
It's important to note that investors need to provide explicit consent and authorization before setting up an OTM mandate. They must understand the terms and conditions associated with the mandate, including the investment amount, frequency, and any relevant charges or fees. Investors should also ensure they have sufficient funds in their bank accounts to avoid any transaction failures or penalties.
