Securities and Exchange Board of India (Sebi) chairman Ajay Tyagi has said Indian mutual funds (MFs) cannot invest in crypto-related products until government regulations on this are clear. Mint explains the rationale behind Sebi’s move:
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?
The regulator’s concerns stem from unclear regulations around cryptocurrencies in India. 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. 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. For taxation purposes, short-term capital gains (less than 36 months) from individual crypto investing are taxed at personal taxation rates, however, there are no clear guidelines for fund investing.
Has any MF applied for blockchain funds?
Invesco CoinShares Global Blockchain ETF Fund of Fund (FoF) had got Sebi’s approval and would have become India’s first scheme to offer exposure to global blockchain companies. It later deferred the launch. Sachin Bansal’s Navi MF has also filed for a blockchain index FoF. The scheme will track Indxx Blockchain Index, which has 100 stocks overall.
How big are the global blockchain funds?
Amplify Transformational Data Sharing ETF (trading symbol, BLOK) is one of the biggest blockchain exchange-traded funds in the US with assets under management (AUM) of $1.4 billion. The exchange-traded fund has delivered returns of over 49% on a one-year basis. Ireland-domiciled Invesco CoinShares Global Blockchain UCITS ETF, another major fund with an AUM of around $1 billion has returned around 50% on a yearly basis. Compared to this, India’s small-cap index is up around 60% this year.
Blockchain is best known as the technology that underpins cryptocurrencies such as bitcoin, ether as well as dogecoin and shiba inu. But it is much more than that as 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.
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