Cap for mutual fund investment in cash to be extended

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Cap for mutual fund investment in cash to be extended
Investors in mutual funds may soon be able to buy in cash for an amount exceeding the current limit of Rs. 20,000 without producing their Permanent Account Number or PAN details. The move is aimed at increasing the penetration of the investment option in small towns and villages where investors prefer to invest in cash.

After discussion of the issue at the Financial Stability and Development Council or FSDC meet, SEBI is likely to issue a circular with enhanced limit for mutual fund investment in cash of upto Rs. 50,000. For the proposed move, however concerns were raised that investors may get an option to park in their unaccounted or illicit funds. Also, it was feared that the increased limit might push fund houses in the industry to increase their infrastructure investment, enhancing the overall cost in small towns and villages.

For others in the industry, the move could result in additional burden as for more and more mutual fund transactions in cash of an higher amount, fund houses would need to deploy security for the currency chest. And as otherwise transactions through cheque do not necessitate all such efforts.

However with some of the views cited against the proposed move such as it could impact and hurt transparency in the system, the issue is likely to be again put forth and discussed in the FSDC meet. Nonetheless, in order to promote the penetration of the investment option across the system and reduce the disadvantage in mutual fund investment in comparison to other investment baskets including insurance product that do not have any limit for transaction in cash, SEBI may increase the cash limit.

Also, to strengthen the mutual fund industry and channelize more of household savings, fund houses have been demanding the government to provide tax incentives for investors in mutual funds.

Read more about: mutual funds, investment, cash, sebi
Story first published: Monday, March 3, 2014, 13:00 [IST]
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