Allowing cash may not be so attractive for investors if KYC norms still need to be complied with.
Fund houses are exploring tie ups with micro-finance institutions and banks, especially public sector banks, with a deep branch network to tap rural money.
SEBI in its August 16 release had said that it will allow cash transactions up to Rs 20,000 in order to enhance the reach of mutual funds among small investors, who may not be tax payers and may not have PAN/bank accounts such as farmers, small traders/businessmen/workers, cash subject to compliance with the Prevention of Money Laundering Act, 2002 (PMLA).
“We could adopt an aggregator model by tying up with NBFCs working with micro-finance institutions. The idea is not to allow cash transactions at an individual level,” says a senior official from a leading fund house.
Some AMCs are looking at tying up with their bank sponsors to deal in cash transactions.
“We may look at tying up with our parent bank first. Going ahead, we can look at partnering with micro-finance institutions and banking correspondents. But they are still in the evolving phase. The investor count in the industry will go up,” says a CEO of a bank sponsored fund house.
Fund officials are of the view that allowing cash transactions for mutual funds may not be so attractive if investors still have to comply with KYC. The greater challenge would be to make investors from the rural areas comfortable with the risks associated with mutual fund. If purchases can be made in cash, SEBI may also allow redemptions proceeds to be paid in cash, say some fund officials.
SEBI
has been stressing on the need for mutual fund industry to broad base their
geographical reach. In order to attract small investors, SEBI has allowed
investments of up to Rs 50,000 without PAN card per person per mutual fund in a
year.
