The Securities and Exchange Board of India (SEBI) has ruled that Indian mutual funds (MFs) cannot invest in crypto-related products until government regulations on are clear.

What are Blockchain Funds?

• Blockchain is a digital ledger system that facilitates the process of recording transactions and tracking assets in a network.
• It is possible to have blockchain without crypto, but in practice the two are highly interlinked.
• Cryptocurrency tends to power the resources needed for a public blockchain network.
• Unlike specific crypto-based investments, blockchain funds invest in multiple companies that are driving sustainable earnings from blockchain businesses.
• Some key companies in this ecosystem are US-based Coinbase Global Inc and Advanced Micro Devices Inc, and Japan’s GMO internet Inc.

Why has SEBI blocked Blockchain funds?

• Absence of regulations: SEBI concerns stem from unclear regulations around cryptocurrencies in India.
• Unclear future: While investing, trading and holding crypto assets are allowed in India as of now, the laws are still not clear as to how they are regulated and taxed.
• Possible ban: There is a possibility that the government may ban trading in crypto altogether or come up with stringent thresholds for investors to delve into this new asset.
• Taxing the gains: For taxation purposes, short-term capital gains from individual crypto investing are taxed at personal taxation rates, however, there are no clear guidelines for fund investing.

Are blockchain funds good investments?

• The technology is creating value by revolutionizing the way assets and digital records are managed and transferred.
• Many companies, particularly in financial services, are investing millions of dollars in researching and building Blockchain infrastructure.
• Although the technology is still in the nascent phase in India, its potential across the board is huge.

Back2Basics: Mutual Funds

• A mutual fund is a company that pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt.
• The combined holdings of the mutual fund are known as its portfolio. Investors buy shares in mutual funds.
• Each share represents an investor’s part ownership in the fund and the income it generates.

Mutual funds are a popular choice among investors because they generally offer the following features:

• Professional Management. The fund managers do the research for you. They select the securities and monitor the performance.
• Diversification or “Don’t put all your eggs in one basket.” Mutual funds typically invest in a range of companies and industries. This helps to lower your risk if one company fails.
• Affordability. Most mutual funds set a relatively low dollar amount for initial investment and subsequent purchases.
• Liquidity. Mutual fund investors can easily redeem their shares at any time, for the current net asset value (NAV) plus any redemption fees.

Risks with MFs

• With mutual funds, one may lose some or all of the money invested because the securities held by a fund can go down in value.
• Dividends or interest payments may also change as market conditions change.
• The more volatile the fund, the higher the investment risk.

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