This is one of those watershed moments for the nascent Indian fintech (Financial Technology) industry.
The regulator of securities trade in India; The Securities and Exchange Board of India (SEBI) has allowed investment in mutual funds via digital wallets. This means that any adult Indian with a digital wallet, can now seamless invest in mutual funds.
As per reports coming in, SEBI has made this big decision to support and encourage the habit of investments and saving among the youth of India, a class of consumers who are anyways using digital wallets.
In July this year, we had reported that SEBI can allow mutual funds investments via digital wallets; a speculation which has now been confirmed by SEBI.
Although Airtel has already informed about their decision to sell mutual funds via their new Payments Bank, which is, in a way, another form of digital wallet; and Freecharge had earlier partnered with Reliance Mutual Funds to sell mutual funds via their app.
But now, as SEBI has officially allowed the mutual fund investments via digital wallets, we can witness a surge in fintech startups, which focuses on this new aspect of digital wallets.
In fact, now digital wallets like Paytm and Freecharge can themselves turn into investment mentors, and open up a new paradigm of fintech industry in India.
Mutual Fund Investment Via Digital Wallets: Dos and Don’ts
Considering the volatile and somewhat risky nature of the investment world, SEBI has released a well-researched and deep documentation on mutual investments via digital wallets.
Some of these Dos and Don’ts are:
- Investor can invest only till Rs 50,000 per mutual fund, per year, using digital wallets
- Money added to the digital wallet via credit cards cannot be used by the investor to buy mutual funds. Only money added via debit cards, net banking and cash can be used to buy mutual funds
- Digital wallets cannot offer cashbacks or any such incentives for promoting mutual funds. Also, the mutual funds bought cannot be used as cashback offers for buying other products
- Instant Access Facility would be provided for all investors, when they decide to sell their mutual funds. And the limit for such withdrawal is Rs 50,000 or 90% of the value of mutual funds, whichever is lower
- Asset management companies (AMCs) are not allowed to take loans, in order to repay the monetary worth of mutual funds, back to the investor. Liquidity needs to be provided out of the available funds from the schemes, and the AMC needs to form a guideline for the same, and inform SEBI about it.
As of now, 42 fund houses in India manage assets worth Rs 19 lakh crore, out of which, Rs 5.54 lakh crore belongs to mutual funds.
However, the most exciting aspect of this decision is the scope of fintech market in India. As per various estimates, around 400 companies in fintech space attracted around $5.4 billion as investments in the Q1 of 2016. With this estimate, the market size can be assumed to be around $21.6 billion last year.
In China, fintech market is $2.2 trillion.
Possibilities are endless, and SEBI has just taken the first step in making fintech market even more bigger and powerful in India.