Capital market regulator Securities and Exchange Board of India (Sebi) is set to allow purchase of mutual fund (MF) units through digital wallets and electronic payment applications. The move comes at a time when online payments are getting a huge push by the government as part of a strategy to steer towards a more digital and less-cash economy. Although most transactions in the Rs 16.5-lakh-crore MF industry don’t involve cash, the move to allow payments through digital wallets could give a fillip to distribution and reach for these investment vehicles, say experts. According to sources, allowing MF investments through digital wallets is part of Sebi’s next board meeting agenda. The board meeting will take place on January 14 in Jaipur, where the market regulator is likely to announce other measures such as relaxation of the municipal bond framework and permitting MFs to invest in real estate investment trusts (REITs) and infrastructure investment trusts (InvITs), sources with the direct knowledge of the development. Sebi has had extensive discussions with the Reserve Bank of India (RBI) and other industry players such as fund houses and electronic wallet operators such as Paytm, Freecharge and Mobikwik on the proposal. The default limit on e-wallet, also known as semi-closed prepaid payment instrument, was recently doubled to Rs 20,000 a month by the RBI. The limit is higher at Rs 1 lakh for KYC-compliant users. Sebi is looking to allow investors to buy MFs units worth up to Rs 50,000 through electronic wallets. However, the redemption of units may not be permitted back into e-wallets and will have to take place in the bank account, said sources. Industry players the move to allow purchases through e-wallets will help in bringing new investors into the MF investment fold. “The proposal of investment through e-wallets has been under active discussion for the last couple of weeks. It is a need of the hour and certainly a must-have in today’s scenario. The regulator knows industry’s stand on this. If it is allowed, it will add another booster to the growth of India’s mutual fund sector,” said Sundeep Sikka, CEO, Reliance Mutual Fund. Adds Leo Puri, MD, UTI AMC, said, “As India takes rapid strides towards a cashless digital economy, allowing investments digitally through wallets will be a positive step by the regulator. This will allow mutual funds to reach out to the smallest towns through a digital model, where reaching through a physical presence would have been difficult. This will bring in new investors into a well regulated industry, which follows a high level of compliance standards.” Manoj Nagpal, CEO, Outlook Asia Capital, says simply allowing e-wallet payments may not help the industry in a big way as most payments as it is are done electronically.
The move should be accompanied with easing of the KYC process, he said.Puri suggests on-boarding of new MF investors should be allowed through a completely digital Aadhar-based process. E-wallet companies say allowing MF investments through their platforms will boost investor participation. “E-wallet companies have a high and unique user base, which is rapidly expanding. The move will also open a new revenue stream for us. It remains to be seen what’s the final framework that Sebi would allow,” says a top official at an e-wallet company asking not to be named. Meanwhile, Sebi is also looking to allow MFs to invests in ReITs and InvITs with certain caveats. A host of infrastructure companies are soon expected to launch InvITs and have already filed their offer documents with Sebi. Also, the market regulator is looking to remove certain irritants to kick start the municipal bond market in the country. The move follows a nudge from the Prime Minister. “I am disappointed that even now, we do not have a municipal bond market. There will be problems and difficulties in creating such a market. But the true test of an expert innovation is when it solves a complex problem. Can Sebi and the Department of Economic Affairs ensure that at least 10 cities in India issue municipal bonds within one year?” PM Narendra Modi had recently said at an event organised by Sebi. Sebi had introduced the municipal bond framework in 2015, however, not even a single municipal body has tapped the bond market yet.