Can I invest in mutual funds using cash? Limit and rules explained

Yes, you can invest in mutual funds using cash. However, there is a limit on the amount that can be invested in a mutual fund in a financial year. But you cannot redeem your investments in mutual funds in cash. This article explains the cash investment and redemption rules for mutual funds in detail.

How much cash can you invest in a mutual fund?

As per SEBI's 'Master Circular for Mutual Funds' dated June 27, 2024, cash investments up to ₹50,000 per investor, per mutual fund, per financial year are allowed. This limit has been applicable since May 2014.

Through a circular dated May 22, 2014, SEBI had increased the cash investment limit from ₹20,000 per investor, per mutual fund to ₹50,000.

The provision of investing in mutual funds through cash is made to improve the reach of mutual fund products among investors who may not be taxpayers, and may not have PAN/bank accounts, such as farmers, small traders, and workers.

However, there are three conditions:

• Compliance with the Prevention of Money Laundering Act, 2002 and Rules framed thereunder for any cash investments.

• Redemptions from mutual funds can be done only in a bank account, not in cash.

• The limit of ₹50,000 includes investments made through both e-wallet and/or cash per mutual fund, per financial year. This means total investment through cash and e-wallets cannot exceed ₹50,000 per mutual fund per financial year.

What SEBI says

"In order to help enhance the reach of mutual fund products amongst small investors, who may not be taxpayers and may not have PAN/bank accounts, such as farmers, small traders/businessmen/workers, cash transactions in mutual funds to the extent of ₹50,000 per investor, per mutual fund, per financial year shall be allowed subject to (i) compliance with the Prevention of Money Laundering Act, 2002 and rules framed thereunder; the SEBI circular(s) on Anti-Money Laundering (AML) and other applicable AML rules, regulations, and guidelines and (ii) sufficient systems and procedures in place," the Master Circular says.

"Repayment in the form of redemptions, dividend, etc. with respect to the aforementioned investments shall be paid only through the banking channel," it added.

In 'FAQs for Mutual Fund Investors' released in 2024, SEBI says: "Yes, cash investments up to INR 50,000 per investor, per mutual fund, per financial year can be made in mutual funds. However, the limit of INR 50,000 would be an umbrella limit for investments by an investor through both e-wallet and/or cash per mutual fund, per financial year. Although investment can be made in cash, repayment in the form of redemptions, IDCW/dividend payments can only be made through the banking channel. The payout bank details have to be provided in the application form."