SEBI Asks Mutual Fund Cos To Ensure Investors Use KYC-Compliant E-Wallets From May 1

Stock market regulator Securities and Exchange Board of India (SEBI) has asked mutual fund companies to ensure that investors use KYC-compliant online wallets to complete their transactions in the mutual fund space. This will take effect from May 1 2023. 

“It should be ensured that all e-wallets are fully compliant with KYC norms as prescribed by Reserve Bank of India (RBI),” SEBI said in a circular. 

On May 8th 2017, SEBI allowed investors to use online wallets (e-wallets) for investment in mutual funds within the umbrella limit of INR 50,000. The regulator allowed investors, particularly young demographic, to procure investment instruments via cash and online wallets every fiscal year.  

The SEBI said that the recent decision (circular) is made to safeguard the interests of investors in securities and also, accelerate the development as well as regulate the securities market.

As per industry experts, the recent move will boost security, increase digitisation in finance, help investment companies manage client data, reduce onboarding expenses for investors and reduce fraudulent activities in the mutual fund sector.  

It is pertinent to note that the stock market regulator has introduced several measures and initiatives to support the mutual fund industry. In Late 2022, SEBI instructed mutual funds to regularly monitor social media platforms and identify entities or groups that portray themselves as registered mutual fund companies luring investors. 

SEBI further asked these companies to take immediate action including the issuance of press releases or filing an FIR against such entities and people.

In October 2022, the regulator busted several fraudulent Telegram groups and fake companies including Paytm Doubling Mutual Funds, Tata Mutual Fund Investment and Bitcoin (Mutual Funds) that made investors invest in fake mutual funds.

In its annual report, SEBI shared that it conducted three search and seizure operations in FY22 to curb fraudulent stock advises and ‘pump and dump’ schemes that were circulated widely via social media. 

It also stated that owing to increased usage of internet and online media, perpetrators are swiftly transmitting and misusing non-public information.

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