The Securities and Exchange Board of India (SEBI) has announced a significant revision to the Know Your Client (KYC) documentation necessary for mutual fund investments. From April 1, the types of documents allowed as proof of identity or address will be limited, affecting both new and existing investors.

Mandatory KYC Compliance

If you are a mutual fund investor, you must now complete KYC procedures before proceeding with your investment. This includes completing a KYC form and submitting valid proof of identification (POI) and proof of address (POA) documents, which are then registered with a KYC Registration Agency (KRA) by the mutual fund company or a Sebi-registered entity.

Accepted POI papers include Aadhaar, passport, driving license, voter ID card, NREGA employment card, and any other document approved by the Centre in accordance with the regulator.

Changes in Accepted Papers

Investors take note: bank statements and energy bills are no longer acceptable documents for KYC completion. In early March, registrar and transfer agents such as CAMS (Computer Age Management Services) and KFin Technologies sent emails to Mutual Fund Distributors (MFDs) informing them of the policy shift.

Impact on Current Investors

For customers who have previously utilized bank statements or utility bills for KYC and want to register a new account or folio, a new KYC process based on the updated criteria is required. Investors having KYC documents validated by PAN-Aadhaar linkage, as well as verified email and mobile numbers, can continue to conduct securities transactions with their present intermediary.

It is critical that all investors, particularly those with older mutual fund investments made before the statutory KYC rules, verify they are KYC compliant. Failure to comply precludes new investments and redemptions; all folio holders must meet these conditions.

Benefits of Online KYC

Investors have the advantage of completing their KYC online using Aadhaar-based e-KYC. This process involves an OTP verification delivered to the cellphone number associated with Aadhaar and requires a mobile device with camera, location, and microphone access. The digital KYC method includes uploading a self-attested PAN copy as well as a signature image.

Towards a Uniform KYC System

The Financial Stability and Development Council (FSDC) advocates for a uniform KYC system across the financial industry, with the goal of streamlining and reducing verification costs. An expert committee, under Finance Secretary TV Somanathan, is expected to establish guidelines for this single approach, potentially easing compliance for investors and institutions alike.