SEBI offers relief on KYC compliance norms for mutual fund investors

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One gets KYC-Validated status, if the KYC is based on Aadhaar and both mobile number and email ID have been validated by the KRA.

In a relief for mutual fund investors, capital markets regulator the Securities and Exchange Board of India (SEBI) has done away with the requirement of linking permanent account number (PAN) with Aadhaar to get “KYC-registered” status for MF transactions.

Know Your Client (KYC) is the process by which entities such as banks, fund houses and stock brokers verify an investor’s identity before they can begin investing with them.

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In a revised circular issued on May 14, the capital markets regulator has done away with the requirement of checking PAN and Aadhaar link.

“Earlier if PAN and Aadhaar were not linked, your KYC would be on hold. Now, if Aadhaar and PAN are not linked and if you do Aadhaar-based KYC, then you will get ‘KYC-Registered’ status. However, for getting ‘KYC-Validated’ status, PAN and Aadhaar still needs to be linked,” said Amol Joshi, Founder of PlanRupee Investment Services.

In October, SEBI had asked all mutual fund investors to re-do their KYC by March 31 if it had not been done based on an “officially valid document (OVD)” such as Aadhaar, passport or a voter ID card.

Earlier, mutual fund investors could do their KYC by submitting a bank passbook or bank account statement as a proof of their address.

As a part of the risk management framework, SEBI mandated KYC registration agency or KRA websites to verify three attributes of records of all clients within two days of receiving information — PAN (including PAN-Aadhaar linkage), name and address.

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But the May 14 circular has done away with the need to check PAN and Aadhaar linkage.

The revised rules say by doing fresh KYC via OVDs, investors get KYC-validated or KYC registered status. These OVDs are driving licence, passport, Aadhaar and voter ID card.

However, if if the KYC status is on hold, an investor will not be able to do any mutual fund transaction such as systematic investment plans (SIPs) or lump sum purchases. Even redemption requests will not go through.

A KYC-validated status means that the KYC is based on Aadhaar and both mobile number and email ID have been validated by the KRA.

KYC-Registered is when an investor’s KYC is based on an ID proof other than Aadhaar and both their mobile number and email ID have been validated by KRA.

KYC-validated investors can continue with all transactions across all fund houses. KYC-registered investors can only transact with the fund houses they already have investments with.