Blockchain Could Finally Free Private-Equity Funds
In India, only the rich get access to private-equity funds. Blockchain could change that, giving everyone access to the rich-only club of niche investments offering lucrative returns.
The Gist
In India, investment options for non-wealthy individuals are limited compared to the affluent, who can access private-equity funds.
- Ordinary investors typically stick to mutual funds, fixed deposits, and savings accounts.
- Private-equity funds require a minimum investment of Rs 1 crore, making them inaccessible to most.
- JPMorgan's blockchain initiative could democratize access to these funds by allowing smaller investments.
If you’re not super rich in India, your digital investment choices are pretty limited. You can buy units of mutual funds, lock away some money in fixed deposits, or maybe invest in equities and commodities.
The rich, on the other hand, have access to all this, and many more avenues. One of them is private-equity funds that invest in start-ups, global companies, or some niche projects offering lucrative returns.
The primary reason it’s off-limits for most people is the large ticket size: a minimum investment of Rs1 crore in most cases.
For ordinary investors, that’s obviously way out of reach. Even those who can don’t always want to commit too much right at the start.
So, ordinary investors end up staying with SIPs, gold, or savings accounts, while the rich folks enjoy the big stuff.
JPMorgan’s Move
In the US, banking giant JPMorgan Chase has tried something new. On October 30, The Wall Street Journal reported that the bank had divided one of its PE funds into digital pieces using its own blockchain, Kinexys.
The pieces, also known as tokens, are like small digital certificates that show who owns what, and the data of ownership is stored on the blockchain.
This means that investors can now buy a small chunk of a PE fund and also trade their share online. All the transactions are recorded on Kinexys. Right now, the offerings are available only to the bank’s clients.
Does it mean investors can buy a piece tomorrow? No. JPMorgan has said it plans to roll this out fully next year.
Opening New Doors
If something like this came to India, it could really change things.
Instead of having to invest something as large as Rs 1 crore, people could buy smaller parts of a PE fund — perhaps for as low as Rs 10,000 or Rs 50,000.
This would open doors for many new investors who did not have access to the private-fund world before.
It would also make getting in and out of PE funds much faster. Once you buy a piece (token), your name and purchase details are updated instantly on the blockchain.
That means you will not have to fill out forms or wait for T+2 days to get the credit of tokens in your account. Everything would happen online and instantly.
Final Words
JPMorgan’s move shows how blockchain can make investing simpler.
India already has a strong base. We use UPI to send money in seconds. We do KYC online in a matter of minutes. We trust our digital systems for most financial tasks. Adding a blockchain-based system to allow everyone to buy a piece of even a PE fund would just be the next step forward.
Of course, we will need rules to make it safe for investors, for which regulators like SEBI and RBI will have to make sure no one misuses the system.
The good news is that the regulators are already exploring ways to see how blockchain can become part of India’s financial markets.
For example, on October 8 this year, the Reserve Bank of India launched a pilot on deposit tokenisation. It means that deposits held at banks would be represented as tokens, which can then be used, transferred, or settled more fluidly across systems.
If financial institutions in India become open to using their own version of Kinesys, it could make private investing as easy as sending money on UPI, and take the idea of financial inclusion a few notches higher.
By the way, if private-equity funds become available to the public, should it even be called “private”? That’s some food for thought.
This series is brought to you in partnership with Algorand.
