Sebi clears Rs 50,000 cash investments in MFs

MUMBAI: To bring in more investors into the mutual fund (MF) sector, mainly those who deal in cash but have limited banking facility at their disposal, market regulator Sebi on Thursday allowed fund houses to accept investments up to Rs 50,000 per person per year in cash.

About two years ago, Sebi had fixed this limit at Rs 20,000. Before that, any investment in a mutual fund was only through cheques, drafts and online transfers and backed by an income tax PAN.

The Sebi decision also met a long standing industry demand as they were losing out to the insurance sector, which allowed any person to pay premium of up to Rs 50,000 per annum through cash. The Sebi decision could also prompt more people to look at mutual fund products, mainly those who at present invest in chit funds where the business is mostly done in cash, MF industry veterans said.Of late for Sebi and the MF industry, penetration into markets beyond the metros and other big cities (called Top 15) has become one of the main focus areas. This decision is aimed at the same, top industry officials said. “This will empower investors with the choice on investment, both through cheque and cash,” said Jaideep Bhattacharya, MD, Baroda Pioneer MF. “This will also help in increasing penetration of MF products to a new set of investors across the country, mainly in Tier II and Tier III towns and cities,” Bhattacharya said.

Industry players said, after this relaxation in rules by Sebi, PSU banks — along with co-operative and regional rural banks (RRBs) — can play a significant role in taking mutual fund products into those areas where there is limited scope of banking and people mostly deal in cash. “They can help distribute MFs among those involved in agriculture, trading, etc, who mostly deal in cash,” an MF industry veteran said.

In the operational guidelines Sebi said although the rules have been relaxed, fund houses should make sure every investor complies with the Prevention of Money Laundering Act, and related rules, and also Sebi’s rules and guidelines against money laundering. Fund houses should also put in place sufficient systems and procedures in place to get investors under the new norms, a Sebi circular said.

Sebi also said that although investment of up to Rs 50,000 will be allowed in cash, repayments from the fund houses for redemptions, dividend, etc, in such investments could be made only through banking channels.