Sebi to soon allow investments in mutual funds through digital wallets

Mumbai: The capital markets regulator may soon allow investors to buy mutual funds worth as much as Rs50,000 a month through digital wallets, in keeping with the government’s aim of increasing digital transactions, according to two people with direct knowledge of the discussions.

The talks were held between officials of the Securities and Exchange Board of India (Sebi) and the Association of Mutual Funds in India (Amfi).

Mutual fund schemes will be the only products in which transactions worth up to Rs50,000 will be allowed through e-wallets. For all other products, the existing limit of Rs10,000 a month will remain. (The central bank on 23 November raised the limit to Rs20,000, in the wake of the government’s demonetisation move.)

“Sebi is keen to allow e-wallet transactions in mutual funds as part of its efforts to digitize the distribution processes for all financial products,” said the first of the two people cited above, both of whom spoke on condition of anonymity. “The draft guidelines can be expected soon.”

According to the proposal, investments up to Rs50,000 in mutual funds will not be required to go through an additional know-your-customer (KYC) process to establish the identity of the buyer, the person said.

“In fact, most e-wallet accounts are already linked to customers’ bank accounts for which a KYC has already been done,” he said.

A Sebi spokesperson did not respond to an email seeking comment.

The 44 asset management companies in India managed total average assets under management worth Rs16.1 trillion during the July-September period. As of 30 June, there were 49 million mutual fund investor accounts in the country, according to Amfi.

Allowing e-wallet transactions is a step in the right direction for digitizing distribution and leveraging technology to grow the industry, said Sundeep Sikka, chief executive officer of Reliance Capital Asset Management Ltd, which managed assets worth Rs1.89 trillion during the September quarter.

“Reliance Mutual Fund was invited by Sebi 10 days back to give a presentation to the mutual fund advisory committee on the new online app for investment called Reliance SimplySafe because this app has been gaining traction since its launch. Alongside, the proposal to allow e-wallet transactions is also being discussed to make things simpler,” said Sikka.

E-wallet transactions are regulated by the Reserve Bank of India. 

“Following the government’s latest measures to track down black money, authorities are willing to allow higher e-wallet transactions for retail customers now, at least in the capital market space, so that investments become a bit simpler,” said the second of the two people cited earlier.

The move, if implemented, will not only encourage cashless transactions but also bring new customers to the mutual fund industry as the number of online transactions has been consistently rising, this person said. 

For purchases above Rs50,000, there will be an additional KYC process for customers, said the first person.

In July, Mint reported that Sebi was considering allowing the purchase of mutual funds using digital wallets and was in talks with RBI to frame regulations allowing such transactions.

The discussions have taken a long time because the committee and Amfi were unable to agree on the stipulated limit for e-wallet transactions so far.

At present, transactions worth up to Rs1 lakh a month are allowed for e-wallet users (though for transactions over Rs10,000, additional KYC processes have to be followed). Companies such as Paytm, Citrus Payment Solutions Pvt. Ltd. and Mobikwik offer e-wallet service.

The Indian digital payments market is set to grow 10 times in the next four years to $500 billion, or 15% of the country’s gross domestic product, according to a July report by Boston Consulting Group and Google.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.