Systematic Investment Plan is a boon for the 21st century as many people are building wealth using SIPs and investing in mutual funds.
SIP is the most convenient option because of its one-time mandate facility. OTM helps you to automate SIP payments and ensures you make investments on time without any manual intervention every month.
In this blog, let's understand the benefits of using this one-time mandate facility.
A one-time mandate is a single registration with your bank that authorises automated transfers from your account to your mutual fund SIP. Once set up, your SIP contributions are deducted automatically at your chosen frequency, which reduces the chances of missed payments.
For example, if you decide to invest Rs 5,000 monthly in a mutual fund, you can set up an OTM that will debit the amount on the 1st of each month. This ensures 120 seamless contributions over 10 years, provided there is sufficient balance in your account.
Here is how you can register an OTM both online and offline:
● Online: Set up through your bank or mutual fund platform by filling in account details and verifying through an OTP.
● Offline: Submit a physical form to your bank or AMC. This process may take a few weeks.
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Benefits of One-Time Mandate in SIPs
Now, let's understand the benefits of using the One time mandate in an SIP:
● All your Investments are Paid on Time
With OTM, your SIP contributions are deducted automatically. It reduces the hassle of manual transfers or the risk of forgetting to make payments and ensures consistent investments.
● Easy to Use
The OTM registration process is quick and easy and takes only a few minutes online or a few days offline. Once registered, you no longer need to worry about payment processes for your SIPs.
● Payment Failures are Reduced
OTM reduces the chances of payment failures that occur due to technical glitches with online payment modes. As long as there is sufficient balance in your account, the payment will be processed smoothly.
● Multiple SIPs can be Managed Under a Single Mandate
You can link multiple SIPs to a single OTM which makes it easier to manage investments across various mutual fund schemes. However, the total amount of SIPs registered under one OTM should not exceed the mandated limit set during registration.
● Helps to Instil Financial Discipline
Automating your SIP contributions encourages disciplined investing. With regular and automated payments, you can avoid skipping any investments in case you are on a holiday or it just simply slips out of your mind.
● Flexibility in Investment Amounts
Although the mandate is registered for a specific amount, most platforms allow you to increase or decrease your SIP contributions within the set limit. This gives you flexibility to adjust your investments based on your financial situation.
● Rupee Cost Averaging
By ensuring regular contributions through SIPs, you benefit from rupee cost averaging, where you buy more units when prices are low and fewer when prices are high.
● Compounding Benefits
Long-term investing allows your money to grow through compounding and generates very high returns over time.
● Simplified Investment Management
You can manage your SIPs efficiently without worrying about missing payments. This also makes it easier to plan your cash flow since you know when the deductions will happen, allowing better budget management.
Conclusion
Setting up a one-time mandate simplifies SIP investments by automating payments, reduces the risk of missed contributions, and fosters disciplined investing.
To ensure smooth transactions, make sure to maintain adequate balance in your account on the debit date. Using OTM ensures you stay on track to meet your financial goals with minimal hassle.
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