Investors in mutual funds may finally relax. People who were having trouble with KYC non-compliance due to the PAN-Aadhaar connection should be aware that SEBI, the capital market regulator, has removed the requirement to link PAN with Aadhaar in order to be considered "KYC registered" for mutual fund transactions. Investors can proceed without providing the extra documentation for the time being.

Investors no longer need to link their permanent account number (PAN) to Aadhaar in order to receive the "KYC registered" status for mutual fund transactions, according to a May 14 Sebi circular.  It should be emphasized, nonetheless, that obtaining the "KYC validated" status requires linking Aadhaar to PAN.

Sebi requested in October 2023 that all investors in mutual funds link their PAN to Aadhaar by March 31, 2024. It said that the KYC process would stop and investment operations would stop if there was a connection failure. A bank passbook or account statement might potentially be used as address verification for KYC.

Subscribers to mutual funds with a "on-hold" account status are unable to purchase or sell units. The SEBI regulation primarily affected non-resident individuals (NRIs) as they are exempt from obtaining Aadhaar.

The regulator asked KYC registration companies to use PAN, name, address, email addresses, and cellphone numbers to confirm the KYC of owners of mutual fund units. Cross-referencing investor information based on PAN and Aadhar cards with government databases, such as Income Tax (IT), was the aim. Investors that used different papers had problems with validation and had to resubmit their KYC. Investors might fulfill their KYC requirements by using papers including a passport and driver's license, according to a revised circular released by Sebi on May 14.

"It's a good sign that SEBI listened to stakeholders when they decided to streamline the risk management framework for KYC Registration Agencies (KRAs) to validate Know Your Customer (KYC) information. It illustrates the transparent strategy used by the regulator to guarantee investor convenience in transactions while making sure businesses follow compliance guidelines. KRAs may now access government databases to confirm PAN, name, residence, email address, and mobile number. These facts will be regarded as verified records if they are determined to be accurate. It is anticipated that it would ensure the digital identity of investors and alleviate issues that many of them have encountered. Verifying digital identities has grown more crucial as more investors turn to digital platforms for investing,” according to Ankit Ratan, co-founder and CEO of Signzy.