Hello Readers! 

Several investors use their e-wallets or internet banking to invest in mutual funds, as they find this way much easy. However, investing in mutual funds through E-wallets or internet banking would now turn tough for investors.

This is because the mutual fund regulatory body, SEBI (Security Exchange Board Of India) recently restricted some 20 banks, for accepting transactions done through e-wallets, or internet banking for investment in mutual funds. They stated the reason that these banks have their third-party verification either pending or missing.

Regarding the same issue, banks that are restricted wrote a mail to their customers, explaining to them the restrictions made by SEBI on e-wallet or internet banking transactions in mutual funds.

HDFC MF wrote to their clients, “We would like to inform you that we do not allow transactions through wallets that are related to e-commerce platforms including bank wallets due to the ‘Third Party’ restriction as per SEBI guidelines to avoid any probable fraud”.

ICICI Prudential MF wrote to their clients, “For regulatory reasons, (some) banks won’t be available for online net banking transaction as they don’t support third-party verification”.

Let us know the whole story in detail.

Third-Party Verification Missing……

If you are a mutual fund investor, and you also use e-wallets or internet banking to transfer money to your mutual fund, then please do check whether your bank allows for third-party verification. In case if they do not support third-party verification you would not be able to make investments in mutual funds (MFs) through channels such as e-wallets.

What’s The Matter?

Transaction in mutual funds through e-wallets or internet banking was becoming much popular among the investors of a mutual fund, the reason they find it too easy and comfortable. However, SEBI rules mandate that investors have to route their money into MFs from their own bank accounts, to ensure a money trail.

But when investors use e-wallets for transactions, it becomes difficult for the fund house to figure out the source of the money or from where the money has come from. This is because generally people have multiple accounts registered to their e-wallets, and they can use any of their accounts to add money to their e-wallet. A senior mutual fund industry says, “Who knows from which bank accounts the money been loaded from, onto an e-wallet”.

Fund officials say that a similar issue is related to a transaction made through internet banking also. When you invest in a fund through Real-time Gross Settlement (RTGS) or National Electronic Fund Transfer (NEFT) system, the transactions get routed through the Reserve Bank of India and your account details get mapped. But the process is not followed every time and in every case. Some banks, do not provide details to the receiving party (a mutual fund) the details of the bank account from which the money came. Thus, fund officials find it difficult to verify from whose bank account the money has come from.

What SEBI has to Say?

SEBI says that this step has been taken in the interest of the investors, as it will obviously help prevent any fraudulent incident. Also, the mutual fund industry supports the decision taken by SEBI, they said, “If the money flows from an unverified source, we would not be able to validate the transaction. It is better to invest through approved channels such as UPI, NEFT/RTGS”.

What Was The Rule Before Restriction?  

In the year 2017, SEBI allowed individual investors to buy MF units worth up to Rs 50,000 through digital wallets, but on a condition that the money in the digital wallet must be added from the investor’s own bank account. And the same was to be ensured by the fund houses.

However, there are many other ways to load a digital wallet with money like cash, credit cards, and cashback.

Banks That Have Been Restricted………

All 20 banks have been restricted by mutual funds on internet banking and e-wallets for investments, and the list includes banks such as Punjab & Sind Bank, UCO Bank, United Bank of India, Vijaya Bank, AU Small Finance Bank, and ESAF Small Finance Bank.

What Should Investors Do Now?

Investors can continue to invest in MFs through many other channels. They can use RTGS, NEFT, UPI (Unified Payments Interface), or an OTM (One-time Mandate).

Keep reading our articles for more updates on finance and investment!!

For any kind of query you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.

Happy Investing!

(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).