Instant Redemption Of Liquid Mutual Funds from SEBI

Instant Redemption Of Liquid Mutual Funds from SEBI:

SEBI is looking to provide facilities to the customers wherein they can receive instant credit in their bank account post redeeming their liquid mutual fund, similar to mobile wallet transaction. The stock market regulator is in the process of designing rules for such transactions. If SEBI implements the scheme on the ground it will enhance the inflow and attract the retail customers towards Mutual funds. As of now, around Rs 2.78 trillion are managed under liquid funds and retail customer contribution is around 3%.

Instant Redemption Of Liquid Mutual Funds

Instant Redemption Of Liquid Mutual Funds

As of now, the money that customer gets after redeeming the mutual fund is credited to his account next working day or two days after the request is made. This happens if the payment is not done through the immediate payment service(IMPS). This is one factor, where Fixed deposit out do the Liquid Funds. Two Mutual funds, namely Reliance Capital Asset Management Ltd and DSP BlackRock Mutual Fund have already started giving their customers the facility of instant redemption in Liquid as well as money market scheme. The amount that can be redeemed is capped to 95% of total balance and a maximum of Rs 2 Lakh per day.

SEBI wants customers to be more comfortable in buying the mutual fund and invest in other liquid funds. Further, the timing seems to be good as the rates on fixed deposits offered by the banks are also low than offered by liquid funds.  SEBI has already discussed its plan with the Association of Mutual Funds in India(AMFI). The stock market regulator is looking to finalise the rules by the end of current fiscal year and implement it thereafter. Liquid funds are free of any load and the exact return offered to the investors is known in advance which is why it has potential to attract large number of investors.

Further, SEBI is looking to put a limit on such transactions to keep any sort of systematic risk at bay in case people start frequent bulk redemption. Therefore, the regulator is looking to provide such facility to the investor under which 70-80% of the redemption will be credited to the investor’s account on the same day. This is done in order to make sure that in case of any negative flow of news, net asset value of the scheme does not suffer immediate jerk on the back of people withdrawing money from the scheme. Reserve bank of India has set its guidelines in connection to all such provisions and SEBI will have to make rules accordingly.

Although the chances of any systematic risk occurring Liquid fund is very low, SEBI wants to make sure that even in the worst case scenario the harm to funds is not beyond repairs. There has not been any instance where liquid fund suffered a setback except one. instance. Back in 2013, severe damage was done to the liquid funds when RBI sucked out liquidity in order to protect rupee. In that scenario, the bond prices cracked and the yield shot up, affecting the net asset value. Investors, then pulled out Rs 45,000 crore in span of just two to three days.



Invest in Mutual Fund through e-wallets

Securities and Exchange Board of India (SEBI) is gearing up to enable investment in Mutual Funds through e-wallets such as Paytm, Rupay, Mobikwik and so on. SEBI’s move comes in to promote the cashless drive and the e-wallet companies will be able to expand their customer base by getting mutual fund investors to pay through their platforms. SEBI has however put ceiling of Rs 50,000 per month for the customers who want to invest in the Mutual Funds, going e-wallet route. In order to start the investment, e-wallet companies should have the non additional KYC documents from the customers.

The Plan

A survey done back in June 2016, concluded that there are total of 49 million mutual fund investors in India and a total of 44

Mutual Fund through e-wallets

Mutual Fund through e-wallets

mutual fund companies serving these customers. In this regard, SEBI invited Reliance Mutual Fund to give a presentation to the mutual fund advisory committee and tell them about the new online app for investment known as Reliance SimplySafe. All the e-wallet transaction are and in future will be regulated be the Reserve Bank Of India. Authorities are keen to give the customers more options to go online and do the transaction at least in the capital market space. Both the regulatory bodies, SEBI and RBI are looking to bring major overhaul in the rule for operating digital wallets. Digital wallet users will have to furnish duly filled KYCs for transaction between Rs 10,000 and Rs 1,00,000.

Rates for Fixed deposits is declining and investors are keen to invest in equities through systematic investment plans. Assets under management of equity mutual funds have surged record high of Rs 4.5 lakh crore at the end off July according to the report released by Association of Mutual Funds in India (Amfi). The Reserve Bank of India states that there are three kind of wallets:-

  • Closed wallets
  • Semi closed wallets
  • Open wallets

Companies who offer open and semi closed wallets are eligible for financial transactions according to the RBI. Paytm, Oxigen Services India Private Limited, Citrus Payment Solutions offer semi closed wallets. SEBI wants to bring digital wallet for investors to invest in mutual funds to reduce the hassle free and paper free KYC procedures. Digital wallet payment will increase the investment in mutual fund and also check the money laundering via cashless transactions. Once the investors decide to invest in the mutual funds through digital wallets, these websites will nudge the investor if the products they are investing in is not suitable compared to risk taking abilities. Investor will be able to select from the string of Mutual Funds products a after filling in the personal and income details. Other details that investors will require to submit is

  • Age
  • Location Details
  • Income Proof

SEBI is of the view that this will be a mutual benefit for the young investors who prefer to make online payment and also for the government and authorities who are cracking down on the black money and laundering.