FP Reporter | Feb – Mar 2014 | Financial Planning Journal (FPSB)

The SEBI recently raised the cash transaction limit for fund houses to Rs.50000 from the earlier Rs.20000. This brings cash transaction in mutual funds to the same as that of insurance companies. However, the veracity of the move is debatable; ever sinec SEBI permitted cash transaction upto Rs.20000 in mutual funds in Sep 2012, the success rate of the move has not been much.

Of the 45-odd entities in the sector, a few such as Peerless Mutual Fund (MF), HDFC MF, UTI MF and Birla Sun Life MF have started offering these facilities to investors through teh tie-ups with banks. Hoeever, most of the other AMCs have stayed away from getting into cash handling. While the move is intended to increase the penetration of mutual funds from smaller centers, whether it will actually result in anything like that is to be seen.

Fund houses argue that in case the move does succeed it could pose problems to AMCs that may not have bankl tie-ups in smaller centers, resulting in cash handling issues in such centers and add to their costs. Moreover, the move is contrary to the SEBI’s policy to curb black money by implementing stringent KYC norms, which limited cash transactions in the first place.

There are also issues pertaining to accounting, for instance cash deposits may be fine, but what abount redemption on such investments as they are routed through the banking channel. Moreover, there could delay between cash deposit and its actual reflection in one’s account statement. While the move does bring insurance and mutual funds to the same level on acceptance of cash, but it is fraught with its share of limitations.