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When India announced demonetisation in November 2016, many people switched to digital payment methods. The pandemic accelerated the digitization trend; retail investors began using digital payments for investment transactions such as mutual funds.
The Securities and Exchange Board of India (SEBI) has, however, allowed mutual fund houses to continue accepting cash as a form of payment, subject to a limit of Rs 50,000 per year per investor at the fund house level. Although most mutual fund investments are now made online, particularly by tech-savvy investors, or via cheques/bank transfers, HDFC Mutual Fund still had a cash window open.
On January 30, 2023, HDFC Mutual Fund announced that it will discontinue accepting cash as means of payment for investment in units of mutual fund schemes. The rationale for this change is that previously, investors would deposit cash directly into the mutual fund house's bank account and receive a stamped deposit slip. The slip would be attached to application forms and processed for mutual fund unit purchases. This is a time-consuming process that entails paperwork at both the ends the investor and the fund house.
On the contrary, most investors prefer to hand over a cheque or make a digital payment rather than carrying cash. Digital payments are less expensive, save time, retain a record of payments, and transactions can be automated. Investing in mutual funds via cash does not allow much headroom, since there is a threshold of Rs 50,000. There are no investment limits with digital payments, which decreases the risk of cut-off timing and eliminates the hassle of paperwork.
As a result, since there are no major advantages to using cash as a payment method for mutual fund investments. HDFC Mutual Fund has decided to eliminate the possibility of making cash payments when investing in HDFC mutual fund schemes. While investing, investors must declare their mode of payment and that it is made using funds from their bank accounts instead of third-party funds or instruments.