R&Ts and AMCs are looking to tighten their processes and control systems to eliminate frauds while dealing with cash
SEBI has said that it will allow fund houses to accept ‘cash transactions’ of up to Rs 20,000 subject to compliance with the Prevention of Prevention of Money Laundering Act, 2002 (PMLA).
Meanwhile, the industry is waiting to see whether they’ll have to pay redemption proceeds in cash as well. If allowed, R&Ts will have to ensure that all their branches are equipped to deal with cash transactions in order to eliminate risks.
“The industry will have to ramp-up its risk management systems,” says Debashish Mallick, MD & CEO, IDBI Mutual Fund.
“We’ll have to keep cash vaults like banks. We are looking at alternate models to address that. We need to ensure that distributors don’t invest in their own name after taking cash from customers. There could be a possibility of black money entering in the system,” says a senior official from the industry.
Some say that foreign fund houses may not allow cash transactions due to their international guidelines and processes. “Not all AMCs will be keen on dealing in cash,” says an official from R&T.
R&Ts are also required to identify suspicious transactions and send a suspicious transactions report (STR) to Financial Intelligence Unit – India (FIU-IND) in Delhi to comply with the money laundering act.
More inflows from small towns
Fund officials are hopeful that they’ll receive good inflows from smaller towns. “A fair amount of inflows can come through cash. We are assuming that people will have a bank account if they are investing Rs 20,000. It’s not a small amount. If they don’t have a bank account then they’ll have to open one to get cash proceeds. I think it’s a good opportunity to go to 500 towns,” says a sales head of a large fund house.
Finding acceptability for mutual funds in hinterland could take its time. “It’s a good move and will allow mutual funds to tap to a larger people who don’t have a PAN card or bank account. It’s a long process and we’ll have to make people understand the concept of mutual funds,” adds Debashish.
Redemption in cash
The issue which the industry is trying to tackle is handling cash redemptions, if allowed by SEBI.
MFs are in the process of figuring out a way to tackle this issue. One way to accept cash is that deposits can be made in a bank which will credit a scheme account. Similarly, redemption proceeds can be paid in cash by the bank if some proof is shown by investors. However, implementing this could be a major challenge for MFs and their respective R&Ts as they’ll have to ensure that fraudulent transactions don’t occur.
SEBI has recently allowed Aadhaar letter as a proof of address in addition of it being an identity proof for KYC. This facility could also be extended for KYC in cash transactions.
UTI,
in its earlier avatar, used to accept and give cash for redemptions. SEBI hopes that the mutual fund industry will
be able to tap farmers, small traders, workers by allowing cash transactions.
