INDIA’S MUTUAL FUND INDUSTRY MAY BENEFIT FROM BLOCKCHAIN TECHNOLOGY

Introduction

 

The Mutual Fund Industry is all about wealth creation which has had a long successful history. The Mutual Funds started with the formation of Unit Trust of India in 1963 by the Indian Government and the Reserve Bank of India. SEBI (Securities and Exchange Board of India) regulations introduced in 1996 and the exemption of the Mutual Funds from income tax dividends from 1999 were the two fundamental turning points in the Mutual Fund domain.

Basics Of Mutual Funds

It is a financial term which refers to a pool of money accumulated by several investors who invest in securities such as money market instruments, bonds, stocks, and other assets. Mutual Funds are operated by professional money managers. Just like gains and rewards earned over the period of investment, losses are also shared by shareholder participants in equal proportion, i.e. in accordance with their proportion of contribution to the corpus. Mutual Funds are registered with SEBI that regulates security markets prior to the collection of funds from the investors.

Blockchain: A Boon For Mutual Fund Industry

One of the biggest challenges in front of Mutual Fund Industry is the centralized system. Blockchain can be a boon for the mutual fund sector for it needs fast operations, more transparency, automation, and cost savings. Also, it helps mutual fund managers with the investment decision-making process, vital for wealth generation, and protects portfolios from risk. As so many parties are involved in Mutual Fund Sector for signing up a new investor, the transaction times are lengthy and hence it takes three to four working days from the point of subscription to the point of settlement. This makes the investing process slow and this is where blockchain technology comes into the picture.

Blockchain could help in identifying flaws in the decision-making process. Blockchain saves Mutual Fund Industry several crores by predicting a financial crisis, or massive scams and frauds.

Blockchain-based Mutual Fund will provide investors with a digital wallet which will hold their digital identity and the digital currency to be invested in the Blockchain Mutual Fund. Also, it will help eliminate the intermediaries. The KYC and AML checks can be done by the Blockchain-based digital identity and not a third party.

The Information available on the Blockchain is permanent. Hence, permissioned parties can generate their statement of accounts at any time. Incorporating Blockchain technology into a business or industry saves a lot of time and energy which can be used to enhance the customer experience.

In India where dealing with Crypto and Virtual currencies are not allowed, the Registrar and Transfer Agent (RTA) would issue a transaction request to the bank for fund transfer and this happens by means of the smart contract. Blockchain reduces transactional risk and settlement time.

Taking note of these developments, Blockchain may be the best solution to keep track of data in the mutual fund system, as the technology could be relied upon to provide early warnings, accountability, transparency, decentralization, privacy, tamper-resistance and detect flaws in investment processes. If implemented, Blockchain technology could remarkably disrupt the way mutual funds operate, similar to its effect on the finance and banking industry.