By Nitya Pandit
To facilitate investments in mutual funds, SEBI (Securities and Exchange Board of India) is amidst discussions which will allow investors to use digital wallets to purchase mutual funds worth up to Rs 50,000. The discussion of this proposal is set to continue next week.
What is it aiming for?
SEBI can use this opportunity to not only promote mutual funds investments but also meet one of the current government aims of facilitating cashless transactions to curb black money. Furthermore, by taking a step to towards digitalization, SEBI will be tapping into a large, young market of tech-savvy investors who will now have the opportunity to digitally invest in diversified portfolios with a lower risk factor.
How does this work?
For investors to make digital transactions, SEBI shall ensure that Asset Management Companies (AMCs) collaborate with payment banks. AMC will have certain regulations pertaining to the e-wallet i.e. the digital wallets balance which comes from cash/debit card/net banking, where it can only be used for investments, as opposed to cash back/any promotional scheme. For investors to withdraw their funds through an online mechanism within a short time period, SEBI will have to construct a framework to establish an instant access facility in liquid schemes. A suggested approach that SEBI can adopt is to limit the investment to Rs 50,000 or 90% of the investment, whichever is lower. The market regulator needs to work with the AMC board and Trustee Board to get their approval before investors are given this digitalized facility.
Advantages
If SEBI gets a green light to go ahead with this digital change, then there are several advantages in store. There will be an increase in the inflow of the household savings into the capital markets, as this digital facility can be an alternative for people to diversify away from conventional saving methods. In general, mobilisation of savings and wealth will increase, given that there are 220 million smartphone users in India. Moreover, any transactions made using the e-wallets will be trackable, hence regulating the flow of black money. The move should definitely help younger investors enter capital markets with lower barriers to entry.
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