E-wallets were never meant for investments, SEBI has got carried away

It is good to be the first but not when the move is fraught with dangerous possibilities.  The market watchdog SEBI’s move to allow e-wallet payments upto Rs 50,000 per financial year per mutual fund house is one such.  Fools rush where angels fear to tread.

Representational image. Reuters

Representational image. Reuters

E-wallets came into being to provide a quick and efficacious payment mode for purchases of goods and services especially utility payments like telephone and electricity bills.  Unlike card and net banking payments that are protected by passwords and OTP, e-wallets are unhampered by such protective niceties or shields.  It is undoubtedly useful for example when you are standing in a crowded metro station with serpentine queues where no one has the time or patience for a long security drill for digital payments.  They are also useful in shops, busy or lousy.

Utilities also benefit from e-wallets as customers love paying without hassles instantly.  The tie-up between the e-wallet service provider and the utilities service provider also results in some cashback flowing into the e-wallet of the customer availing this facility.  This is the main reason why the e-wallet major paytm is registering a quantum jump in business steadily.

The SEBI has ushered in an e-wallet regime for mutual fund investments stripped of such attractions like cashback direct or indirect.   The idea is investors should not be led up the garden path by such extraneous considerations.  Fine but the following factors question the very wisdom of the SEBI permission for investments in mutual funds through e-wallets:

  1. Investments are not the same as routine purchases or utility payments. They call for patient analysis of issues involved like fundamentals, market, endogenous and exogenous factors. To be sure, a lay investor does not do all these.  Indeed, mutual funds are meant for lay investors.  But SEBI has been simplistic in its avowed desire to simplify.  All that is required for a suave mutual fund house or agent is to sweet-talk a gullible person with a smartphone loaded with e-wallet into parting with his funds without much care she would have otherwise exercised.
  2. SEBI has wisely refrained from extending the same facility to share market investments. And rightly so because direct investments are that much more complicated and involved.  Ought the same factors not have weighed with the market regulator in the context of mutual fund investments as well instead of casting the investors to the dangers of impulsive investing in the name of promoting mutual fund investments?
  3. Payments through banking channels leave a firmer footprint of the payment and the investor. Remember e-wallets do not insist on Know Your Customer (KYC) norms compliance.  Indeed regulations have kissed them goodbye for e-wallets filled only to the extent of Rs 20,000.
  4. E-wallet companies’ calling card is freebies like cashback. Now that the SEBI has frowned upon and ruled out such incentives direct or indirect, e-wallet companies as well as investors are bound to lose interest in offering themselves as payment platforms.
  5. Rs 50,000 per year per mutual fund house is a hell of a lot of money. The indulgence shown to e-wallet payments thus could be staggering in aggregate.  If mutual funds have been slow in taking off in India, the reason is certainly not lack of quick and easy payment mode.  In fact, lack of financial literacy is the main reason.  The SEBI has conveniently glossed over this and in the process missed the woods for trees.
  6. SEBI has pointedly said while investments through e-wallets are par for the course, disinvestments are not. Which means at the time of redemption of the units, the proceeds must be credited to the investor’s bank account.  The duplicity in standards is too stark to be missed.
  7. Both the SEBI and mutual funds exist to protect the small investor. Alas the latitude to invest through e-wallets is bound to have the opposite effect.

War is too serious a business to be left to generals.  Investments are too serious to be left to e-wallets.

Updated Date: May 10, 2017 19:24 PM

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