Sebi raises cash transaction limit in MFs to Rs 50,000

MUMBAI: Investors without Permanent Account Number (PAN) can now put as much as Rs50,000 in mutual funds in cash every year. Sebi on Thursday said it was increasing the limit for cash investments to Rs50,000 from Rs20,000.The move is aimed at helping mutual funds sell products in small towns and rural areas, where transactions happen in cash rather than through banks.

Sebi has been pushing mutual funds to spread to towns outside the top-15 cities. Some large fund houses made a representation to Sebi that raising the cash limit would help them tap the smaller towns. Mutual fund officials said the move will benefit only some asset management companies as majority of the industry still prefer investors with a PAN and bank account. “We have stayed away from this arrangement because of the various issues of handling cash,” said Arvind Sethi, Managing Director &CEO at Tata Asset Management.

Many mutual funds are wary about investors using this system to bring in unaccounted money. Also, redemptions are processed only through bank accounts, making it mandatory for investors to open one even if they buy mutual fund units in cash. “Logistically, it is a nightmare unless a mutual fund does not have deep pockets or an existing rural network,” said the chief marketing officer with a private mutual fund.