Earlier, the Securities and Exchange Board of India (SEBI) had allowed investors to make cash investments in mutual fund products upto Rs 20,000 in order to widen the reach of mutual funds and revitalise the industry. However recently, the capital markets regulator has expressed its desire of raising the limit for cash investments to Rs 50,000. The capital market regulator is of the view that this move will allow mutual fund houses to expand their reach into towns and villages which are smaller in size and where the investors would be more comfortable if they were allowed to make transactions in cash.

But this move seems to have gone awry with mutual fund houses as they do not see huge investment inflows coming through this route. Moreover, they believe that the cost involved in handling cash investments (by setting up cash management facility) and accounting complexities are deterrents. Although through this route there would be more equality among different forms of investment (while transacting); in case of insurance products (which are competitors to mutual fund products) however, there is no limit for cash investments. Also, this move is further facing criticism due to the following aspects:
 

• Money laundering
• Meddling by tax official agencies and economic intelligence agencies
• Fear of frauds
• Additional spending on deploying the right infrastructure
   

According to mutual fund houses, the number of people utilising this cash investment facility are limited. Moreover, even though the initial purchase of units can be done in cash, investors nevertheless need a bank account for obtaining their money, when they wish to redeem their mutual fund investments. Hence due to these reasons fund houses believe that most investors would not mind buying mutual fund units through cheque in the first place.

But despite of the drawbacks, SEBI is of the view that, this move will benefit the investors at large and also help the mutual funds to gain penetration in smaller towns and villages. Nonetheless, whether this proposal will be implemented or not remains to be seen.

PersonalFN is of the view that although the wariness of some mutual fund houses related to the enhancement of the cash investment limit is justified to an extent, this move could be beneficial for small investors. It offers investors multiple modes of investing in mutual funds and encourages them to save more. Moreover, once established on a larger scale, this facility would also enable mutual fund houses to widen their reach and increase their asset base. But having said that, we recommend investors to buy into mutual fund schemes, vide a cheque or through an internet banking (if they are transacting online), as that would always serve them with a proof of the transaction done. While opting to invest vide cash in mutual funds, care should be taken and it is imperative to be a responsible investor.

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