How SEBI has pushed reforms on mutual funds…

The big gap on the mutual funds front was the digital enablement of mutual funds. Currently, banking has gone substantially “Digital” but mutual funds still have a long way to go. The advantage of digital is that it helps expand the market laterally, rather than just vertically. The growth of mutual funds can then be exponential rather than the kind of linear growth that we have seen in the last 20 years…

Mutual fund investments… 

Mutual fund investments have to be currently done by checks, demand drafts or through NEFT online payments. Mobile wallets and other newer forms of digital money are not permitted in mutual funds. This Board meet has made a start in changing that situation. SEBI has permitted mutual funds to accept investments in mutual funds via e-wallets. E-wallets are pre-paid money accounts like Paytm and others which have become a standard form of payment. The advantage of e-wallets is that it has spread substantially into the rural and semi-urban locations. Thus permitting e-wallets will enable millions of people in these areas to also participate in wealth creation through equity mutual funds. To begin with, SEBI has restricted the limit of e-wallet investment to Rs.50,000/- but that itself is a good beginning. For mutual funds, this offers a more convenient mode of accepting investments and also opens up a much bigger sales channel.

Mutual fund redemptions… 

Currently, many mutual funds are allowing same day redemption credit in case of money market mutual funds. This has created a piquant situation for the regulator since these mutual funds are not authorized to act as banks. SEBI has permitted to offer such redemptions subject to a maximum limit of Rs.50,000 per day. The mutual fund in question will have to tie up with a payment bank or with an e-wallet company to offer this facility to investors. SEBI has also permitted an additional benefit to mutual funds. They will now be permitted to directly credit the proceeds of redemption of funds to the e-wallet account of the individual subject to the same limit. 

How is the playground emerging?

The SEBI meet could be the harbinger for bigger changes and reforms as far as mutual funds are concerned. Permitting investments via e-wallets will open a much bigger market for mutual funds. It will also set the tone for allowing mutual funds to sell via ecommerce websites, which will give a much larger reach at extremely reasonable costs. For the MF industry, distribution and scale have been the two biggest challenges. These changes announced by SEBI will go a long way in partially addressing these two critical issues. For Mutual Funds this could be the beginning of a major scale up of their market opportunity. ©

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