Understanding Recent Changes in SEBI Guidelines for Mutual Fund KYC Norms

SEBI Guidelines

SEBI rules constantly evolve for investment security. New SEBI guidelines mandate strict KYC norms for mutual fund investors. Learn about online KYC and steps to update your mutual fund KYC. There is so much news about SEBI Guidelines for Mutual Fund KYC Norms these days, but do you know what it is and what it means for you as a mutual fund investor? Read on…

What is Mutual Fund KYC?

KYC stands for “Know Your Client” and is widely prevalent in the financial services industry. Simply put, mutual fund KYC helps accurately identify the individual(s) who are involved in a financial transaction, like buying or selling mutual funds.

Why is KYC required?

It’s primarily required for two reasons:

  1. It prevents illegally procured money from getting into the system by linking the money with the individual owners.
  2. It helps reduce the risk of identity theft and ensures the safety of the investments.

What’s happened recently with KYC Updates and SEBI Guidelines?

To ensure KYC objectives are achieved, SEBI guidelines have introduced new KYC updates. These SEBI guidelines have made the following validations mandatory effective April 1, 2024, for both new and existing KYCs:

  • name should be as per Income Tax records.
  • address should be validated via AADHAAR (Digilocker based/ XML-based, or via UIDAI).
  • mobile number and email address of the investor should be validated.

The impact of this change can be summarized in the below table:

KYC StatusInvestment
All Validations PassValidatedCan invest in any AMC
Non Aadhaar Address proof given at the time of KYCRegisteredCan only invest in AMCs where they have investments. Redemption allowed
PAN/Aadhar not linkedRegisteredCan only invest in AMCs where they have investments. Redemption allowed
Either of Mobile or email is verified RegisteredCan only invest in AMCs where they have investments. Redemption allowed
For NRIs -Non Aadhaar Address proof given at the time of KYC-PAN/Aadhar not linked-Either of Mobile or email is verified 
RegisteredCan invest in any AMC

* It is recommended to clear all the necessary validations by modifying the mutual fund KYC, providing Aadhaar as an address proof, getting PAN/Aadhaar linking done, and providing correct mobile and email information to invest in any AMCs.

A press release from KRAs on April 25, 2024, highlighted that 

  • 73% of KYC records are “validated.” 
  • 15% are “Registered,” and 
  • remaining 12% are “On-Hold.” 

These statistics underscore the scale of the transition and the need for a streamlined process.

Key Challenges faced by MFDs in KYC for Mutual Funds

  1. Access to the latest KYC status for all their clients: The only way to get KYC status for mutual funds is to visit the KRA websites. However, checking KYC status for mutual funds multiple times to get accurate, up-to-date information for each of their clients is a monumental task.
  1. Lack of clarity in the guidelines: It was difficult for a regular MFD to understand why a particular investor has a particular KYC status and the appropriate remedy for it. This resulted in failed transactions, causing a bit of panic among MFDs and investors.
  1. KYC modification is not simple: Offline KYC processes are laborious, time-consuming and error-prone. Limited access to online modification platforms further delays compliance efforts.
  1. Complexities for NRIs: Implementing KYC norms for non-resident Indians (NRIs) presents unique challenges, especially regarding Aadhaar authentication. Requiring the investor to perform KYC for every transaction puts a considerable burden on the entire investment process. SEBI’s recent circular addressing NRI concerns by extending compliance deadlines shows a proactive approach.

How did Nivesh help with KYC norms?

  1. Digital-first processes: We had adopted a Digilocker-based KYC process way back in 2022. Using Aadhaar for verification ensured most of our clients had “validated” KYC status, minimising the impact of the new guidelines.
  1. KYC Modification: We introduced a completely online KYC modification process to ensure our partners and clients do not have to face the burden of compliance and can complete their mutual fund KYC in a timely and efficient manner.
  1. Dedicated Helpdesk: We created a dedicated KYC helpdesk to address partners’ concerns and queries. Our team offered continuous guidance and support in understanding and adhering to the changing SEBI rules and regulations.

Over 2000 KYC modifications executed and assistance provided to 500+ distributor partners demonstrate Nivesh’s commitment towards our partners and clients for a seamless digital experience.

Our opinion is that the KYC norms are a step in the right direction towards investor protection. With the right mindset and digital processes in place, we strongly believe we can help the industry (AMCs, distributor partners, and investors) overcome the challenges and contribute to its exponential growth through efficient online KYC for mutual funds.

If you have any concerns or questions about the KYC process and how it affects your investments, please feel free to reach out to us at 7290029205 or distributorsupport@gmail.com . We would be glad to have the opportunity to serve you.

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