By Arnav Pandya, CFP
For small investors, transactions up to Rs. 20,000 in cash is allowed for investment in MFs (mutual funds).
There is a specific process that needs to be followed while investing in a mutual fund and one part of this deal is the manner of investing.
There is a need to know the types of instruments that can be used for investment and, hence, this becomes an issue to focus on. A question that many people have is whether one can invest using cash but this is something that has to be seen carefully in the light of the recent changes proposed by the Securities and Exchange Board of India (SEBI) and here is a way in which these conditions will work.
Large Amounts..!
The first area that a lot of people have questions about is the ways in which one can actually invest in MFs. There are different routes like cheque or / online transfer of funds for the purpose of making investments.
This is especially true when it comes to regular investing or / larger amounts like say Rs. 1,00,000. (Rs. 1 lakh) If you are a regular investor or / plan to be a serious investor, then using cheques or / giving direct instructions to banks like the Electronic Clearing System( ECS) or / online funds transfer would be one of the best ways to go about the process. The investor can be confident that the process will be completed without any disruption and this would be easier to manage.
Cash Requirements..!
There are some investors who want to use cash for their regular investments. But, there can not be a use of cash for the purpose of investing in MFs.
MFs demand the investment only to come from the bank account of an individual. This clearly highlights how the individual is restricted in terms of the instruments used while investing. Thus, serious investors who want to ensure that they are building up a good corpus should plan ahead to ensure that the investment process is not held up.
New Requirements..!
In order to ease the situation for certain categories of investors, market regulator SEBI has made some recent changes with respect to the investments in cash for mutual funds. These will be applicable only for small investors who are not taxpayers and do not have a Permanent Account Number (PAN ). Some of the people falling under this category are farmers, small traders, small businessmen and workers.
For this category of people, transactions up to Rs. 20,000 in cash would be allowed for investments in MFs, provided they comply with the provisions of the anti money laundering requirements. This will then open the way for some small investments using cash but once again it might not be applicable for every investor.
The writer By Arnav Pandya, is a CA and CFP - Certified Financial Planner
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