Mutual fund news:
In a major relief for mutual fund investors, the Securities and Exchange Board of India (SEBI) has removed the requirement to link the Permanent Account Number (PAN) with Aadhaar to obtain “KYC-registered” status for mutual fund transactions.
Know Your Client (KYC) is a mandatory process for banks, fund houses, and stock brokers to verify an investor’s identity before they can start investing. This process ensures that investment entities know their clients well and can prevent fraudulent activities.
Changes in KYC Requirements
In October 2023, SEBI mandated that all mutual fund investors link their PAN with Aadhaar to complete the KYC process by March 31, 2024. Failure to link PAN and Aadhaar would put the KYC process on hold, preventing any investment activity. Additionally, KYC could be completed using a bank passbook or account statement as proof of address.
However, this led to the temporary suspension of numerous mutual fund accounts, reportedly affecting over 13 million accounts where KYC updates were incomplete. The issue arose because individuals provided non-Aadhaar and non-officially valid documents (OVDs) during the initial KYC registration process.
In a revised circular issued on May 14, SEBI has eased these requirements. Investors no longer need to link their PAN with Aadhaar to obtain “KYC-registered” status. This status can be achieved by completing KYC with other Officially Valid Documents (OVDs) such as Aadhaar, passport, driving license, or voter ID card. However, for “KYC-validated” status, linking PAN and Aadhaar remains necessary. This status indicates that the investor’s KYC is based on Aadhaar, with both their mobile number and email ID validated by the KYC Registration Agency (KRA)
As of May 14, SEBI no longer requires PAN and Aadhaar to be linked for an investor to receive “KYC-registered” status.
Investors can obtain “KYC-registered” status by completing KYC with other Officially Valid Documents (OVDs) such as Aadhaar, passport, driving license, or voter ID card.
To obtain “KYC-validated” status, PAN and Aadhaar still need to be linked
However, the May 14 circular has removed the need to check the PAN and Aadhaar linkage.
On-hold KYC status: Investors with on-hold KYC status cannot perform any mutual fund transactions, including systematic investment plans (SIPs), lump sum purchases, or redemption requests.
KYC-validated investor: These investors face no restrictions on transactions and can deal with all fund houses.
KYC-registered investors: They can only transact with fund houses where they already have investments.
The timing of these changes coincides with the government’s notification by the Central Consumer Protection Authority (CCPA) in November 2023, prohibiting 13 types of dark patterns in marketing and sales, which include manipulative practices like forced action and subscription traps.
