Sebi may let investors buy mutual funds with digital wallets

The capital markets regulator is considering allowing the purchase of mutual funds using digital wallets, or e-wallets, in an effort to expand access to such investment products, two persons with direct knowledge of the matter said.

The Securities and Exchange Board of India (Sebi) is in talks with the Reserve Bank of India (RBI) to frame regulations allowing such transactions, one of the two persons said. Both spoke on condition of anonymity.

RBI norms allow customers to conduct online transactions of up to Rs.10,000 through e-wallets without going through any know-your-customer (KYC) process.

For transactions of more than Rs.10,000 and up to Rs.1 lakh, a KYC process is mandatory for e-wallet users.

At present, e-wallets do not allow for transactions greater than Rs.1 lakh. But all mutual funds are mandated to be KYC-compliant.

“Sebi is currently in discussion with the Reserve Bank of India to frame appropriate e-wallet transaction norms for mutual fund investors with certain capping on such investments. The norms will make it much easier for any customer...to make hassle-free investments in mutual fund schemes through e-wallets. But to avoid chances of money laundering, the new norms will have certain limits on such investments,” said the first person cited above.

The move is part of an effort by the capital market regulator to make these financial products more accessible to investors.

Sebi is set to allow online marketplaces such as Flipkart and Amazon India to sell mutual funds, Mint reported on 27 June.

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

An executive at a digital payments company confirmed that the markets regulator is thinking along these lines.

“We were called by the regulator for a discussion on the risk measures and other aspects of selling mutual funds through e-wallets. Since consumers already come for payments and transactions on wallets, allowing them to buy mutual funds through an e-wallet will be more convenient,” said Jitendra Gupta, founder, Citrus Payment Solutions Pvt. Ltd.

“You will be able to buy an MF like you buy it online from an MF brokerage firm...Also, today e-wallet companies can’t give interest on the amount left in the wallet. With mutual fund, the money can be swiped into a liquid fund and consumers can earn higher interest on it,” he added.

The chief executive officer of one of India’s top fund houses said Sebi’s focus on using digital channels for mutual fund transactions is in the right direction. “This will be a win-win for both customers and the asset management companies. It will bring new investors into mutual funds,” he said on condition of anonymity.

A decision to allow purchase of mutual funds using e-wallets will be another step towards building a cashless economy.

Financial institutions and financial technology companies are pushing the use of the Aadhaar-enabled e-KYC process, wherein the identity and address of an investor is verified using the ID number issued by the Unique Identification Authority of India or UIDAI.

That would do away with reams of paperwork that made investing in financial products difficult and time consuming.

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

By 2020, the country’s internet user base will reach 500 million, and half of them will make digital transactions, the report said.