Sebi raises cash investment limit in mutual funds to Rs 50,000

The Securities and Exchange Board of India (Sebi) has increased the cap on cash investment in mutual funds from Rs 20,000 to Rs 50,000 a year.

In a move to enable small town investors to invest in mutual funds, Sebi had in 2012 allowed mutual funds to accept investments up to Rs 20,000 in cash.  

"The whole idea of allowing investments in cash was to bring in more investors in the mutual fund fold. Though earlier the limit was Rs 20,000 a year, Sebi must have now realized that this is too small an amount and hence increased the limit," says Vijay Mantri, chief executive officer, Pramerica Mutual Fund.

According to him, many people in small towns do not have cheque books and without cheque book investment in mutual fund was not allowed. This excluded many potential investors from putting their money in mutual funds.

However, Sebi allows only investment in cash, for redemption one has to have bank account. One has to be KYC compliant to be able to invest in cash.

"In case of cash investments, we have to be more vigilant so that no one is creating fake accounts and investing in funds. If the investment is made through cheque, you know that the person already has a bank account and is KYC-compliant, but in case of cash investment, we have to check every document to ensure authenticity of the investor," says Vijay Mantri.

It is to be mentioned here that mutual funds do not accept third-party cheques except in case of minors.