Recent Changes in Mutual Funds KYC: A Client’s Guide

According to an official report, as of April 25, 2024, 27% of mutual funds investors do not have a validated KYC status, affecting their investments and transactions. If you are one of these 27% and facing problems, read on.

Mutual Fund KYC – what does it mean?

KYC simply means “Know Your Client” and is applicable to many services that you get today. E.g. getting a new SIM card, opening a new bank account, registering a property etc. The KYC in mutual funds is maintained by the KRAs (KYC Registration Agencies) like CDSL, NSDL etc.

You can check your KYC status on any of these sites. E.g. https://www.cvlkra.com

Why is KYC required?

It’s primarily required for two reasons

1. It creates the link of the money with the individual investors, thus preventing money laundering
2. It ensures safety of the investments by reducing the risk of identity theft

What did SEBI change recently?

SEBI has made the following validations mandatory effective April 1, 2024 for both new and existing KYCs

1. Name should be as per Income Tax records
2. Address should preferably be validated via AADHAAR (Digilocker based/ XML based / Via UIDAI)
3. Mobile number and email address of the investor should be validated
4. Name should be validated from IT records, one can refer to the link- https://www.incometax.gov.in/iec/foportal/ to check his/her name in the records.

This was done to ensure the objectives of KYC as mentioned above are met adequately.

The impact of this change is laid out below

	KYC Status	Investment
All Validations Pass	Validated	Can invest in any AMC
Non Aadhaar Address proof given at the time of KYC	Registered	Can only invest in AMCs where they have investmentsRedemption allowed
PAN/Aadhar not linked	Registered	Can only invest in AMCs where they have investmentsRedemption allowed
Either of Mobile or email is verified	Registered	Can only invest in AMCs where they have investmentsRedemption allowed
For NRIs -Non Aadhaar Address proof given at the time of KYC-PAN/Aadhar not linked-Either of Mobile or email is verified	Registered	Can invest in any AMC

* It is recommended to clear all the necessary validations by modifying the KYC, provide Aadhaar as an address proof, get PAN/aadhaar linking done and provide correct mobile and email so as to invest in any AMCs.

A press release from KRAs on April 25, 2024, brought out that 

• 73% of KYC records are “Validated,” 

• 15% are “Registered,” and 
• Remaining 12% are “On-Hold.” 

These numbers point to the criticality of a streamlined process to address KYC issues.

Key Challenges for Investors

1. Access to KYC status for themselves and their family members: KRA websites provide this information. But one needs to be diligent and regular in monitoring the status on an ongoing basis so that appropriate action can be taken.

2. Limited understanding of the guidelines: Not being able to understand why an investor had a particular KYC status was concerning. It resulted in failed transactions, causing a bit of panic among investors with respect to the safety of their investments and hard-earned money.

3. KYC modification is not simple: Filling up forms is a manual, slow and error-prone process. Not having access to online modification platforms further delayed the efforts to become KYC-compliant.

4. NRIs had it tougher: KYC norms for Non-Resident Indians (NRIs) had unique challenges, especially regarding Aadhaar authentication. The NRI investor was required to perform KYC for every transaction, significantly increasing the overhead in the entire investment process. SEBI’s recent circular aimed at addressing NRI concerns by extending compliance deadlines and hence showed a proactive approach.

The key to solving these challenges is to connect with financial advisors or mutual fund distributors who 

1. are able to understand and navigate their way through the maze of regulations
2. are tech-savvy and adopt digital processes to help investors stay compliant

How did Nivesh help?

1. Online process: We were already on a Digilocker-based KYC process since 2022. The Aadhaar-based process ensured most of our clients had “Validated” KYC status. This minimised the impact of the new guidelines on our clients.

2. Streamlined KYC Modification: We introduced a fully online KYC modification process to ensure investors can complete their KYC in a timely and efficient manner.

3. Dedicated Support: We established a dedicated KYC helpdesk to address concerns and queries around the KYC changes. Our team offered continuous guidance and help in understanding and adhering to the changing regulatory landscape. 

Over 2000 KYC modifications have been executed on our platform since then. This demonstrates Nivesh’s commitment towards our partners and clients for a seamless digital experience.

Moving Forward

As we adapt to the new KYC norms in the mutual fund industry, it’s essential to stay informed and proactive. By leveraging digital tools and maintaining close communication with our investors, we can navigate these changes smoothly. Nivesh’s initiatives are a testament to how collaborative efforts between stakeholders can make the compliance process more manageable for us.

Staying ahead of these changes and understanding their implications will help us continue to make informed investment decisions.

If you have any concerns or questions on the KYC process and how it affects your investments, please feel free to reach out to us at 7290016914 or clientwealth@nivesh.com. We would be glad to have the opportunity to serve you.