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  • SEBI Enables Mutual Fund Industry To Be More Digitally Savvy

    Quote by Jayant Pai in Bloomberg Quint, April 26, 2017

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    SEBI Enables Mutual Fund Industry To Be More Digitally Savvy
    A vendor displays the Paytm mobile digital payment app (Photographer: Dhiraj Singh/Bloomberg)
    From one 'D' to another - demonetisation paving the way for digitisation. That's how experts described the Securities and Exchange Board of India's (SEBI) move to allow investments in mutual funds through e-wallets. The market regulator has also allowed instant access facility in liquid schemes of mutual funds.

    Both these measures will help the industry in customer acquisition, A Balasubramanian, chief executive officer at Birla Sun Life Asset Management, told BloombergQuint.

    "Allowing instant redemption from money market mutual funds is in line with industry expectations. Additionally, e-wallets are growing in size and this move will encourage people to consider liquid funds as an option compared to savings account."
    A Balasubramanian, Chief Executive Officer, Birla Sun Life Asset Management

    Instant Access Facility

    SEBI has capped instant redemptions from liquid schemes at ₹ 50,000, or 90 percent of the folio value, whichever is lower, by applying lower of previous day or prospective net asset value. However, mutual funds are disallowed to borrow funds for this facility and will have to use available funds from the scheme to meet the liquidity demands.

    "The intent is to route household or retail money into liquid funds. But we will have to look at the economics of it; liquid funds currently work on very thin margins. We need to look at economies of scale. Most of the money in liquid schemes is institutional; this is an enabler to channelise savings account money into liquid funds."
    Lakshmi Iyer, Chief Investment Officer-Debt & Product Head, Kotak Asset Management

    Liquid funds have a portfolio with a maturity of less than one year and currently the redemption is on T+1 basis, explained Jayant Pai, a certified financial planner. "You can redeem the investment today but the money gets credited to your account the next day," he said.

    Many investors prefer bank accounts for parking excess funds as liquidity is available almost instantly, Morningstar Investment Adviser said in a media note.

    "Introduction of an instant access facility up to ₹ 50,000 should help investors draw greater comfort of instant access to funds in case of emergencies. This facility has existed in some form with select AMCs."
    Morningstar Investment Adviser

    Use Of E-Wallets

    SEBI has also allowed use of e-wallets to invest up to ₹ 50,000 per mutual fund in a financial year. Redemptions of such investments can be made only to a bank account of the unit holder, SEBI's press release said. However, balance loaded only through cash, debit card or net banking can be used for such investments and not that loaded through credit card, cash back or promotional schemes.

    "This is a step towards digitisation post the demonetisation era," Iyer of Kotak Asset Management said.

    Pai, though, doesn't view this as a game changer since investing through an e-wallet will only add the number of steps in making an investment.

    "First, purchase through an e-wallet can only be funded through my debit card or net banking; it would have been progressive if credit card was permitted. Also, the number of steps increase. Suppose, I go to a fund's portal and choose e-wallet as the option, I have to first fund the wallet by entering my debit card details and then make the investment. If I use a debit card, it's one step less."
    Jayant Pai, Certified Financial Planner


    I don't think this will become very popular, he said.

    Morningstar Investment Adviser views this as another payment option, especially for the younger generation of investors.

    The original article could be seen here.

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