Under SEBI and Prevention of Money Laundering Act (PMLA) provisions, what are the statutory conditions for making cash investments in mutual fund schemes?

[ A ]Unlimited cash investments are permitted for all corporate and foreign institutional investors without KYC.

[ B ]Cash is accepted up to Rs. 10 lakhs provided the investor collects cash redemption payouts in physical currency.

[ C ]Cash investments are completely illegal and punishable with immediate cancellation of the unitholder's PAN card.

[ D ]Permitted up to an umbrella limit of Rs. 50,000 per investor, per mutual fund, per financial year for resident individuals/minors; redemption proceeds are strictly paid only via banking channels.[ CORRECT ]

Takeaway

Option D is correct: Permitted up to an umbrella limit of Rs. 50,000 per investor, per mutual fund, per financial year for resident individuals/minors; redemption proceeds are strictly paid only via banking channels.

Derivation

To assist small rural investors without banking access, SEBI allows cash subscriptions in mutual funds up to Rs. 50,000 per investor, per mutual fund, per financial year. The investor must be KYC compliant, obtain a bank deposit slip from an ISC, and deposit cash at a designated bank branch. However, all outbound repayments—including redemption proceeds and dividends—can NEVER be paid in cash and must strictly be routed through the investor's verified bank account. This tests cash investment rules. A common trap is assuming redemptions can also be paid in physical cash.

Why the others fail

A — Unlimited cash investments are permitted for all corporate and foreign institutional investors without KYC.

Unlimited cash investments are prohibited under PMLA, and corporate/FPI entities are barred from cash subscriptions.

B — Cash is accepted up to Rs. 10 lakhs provided the investor collects cash redemption payouts in physical currency.

Cash is capped at Rs. 50,000 per FY (not Rs. 10 lakhs), and cash redemption payouts are strictly barred under banking regulations.

C — Cash investments are completely illegal and punishable with immediate cancellation of the unitholder's PAN card.

Cash investments within the Rs. 50,000 limit with valid KYC are legally permitted under SEBI financial inclusion circulars.