The proverbial monkey on the back is tormenting investors yet again. After changes in Know Your Customer (KYC) norms, starting 1 April, millions are now staring at another bout of KYC updates or risk a freeze on all transactions.
Many investors are discovering that their existing KYC status has become invalid. The validity is determined by the identity or address proof submitted during KYC registration. The regulator has narrowed down the list of officially valid documents (OVD) that can be used as proof. This list includes documents like Aadhaar, passport and voter ID, among others. The previously valid documents like bank statements and utility bills are not in the revised list. So your previously registered KYC would have been put ‘on hold’ if it was done with non-OVD documents, or your e-mail/mobile were not verified. Such investors are no longer allowed to transact even for existing investments. This means any running SIPs or fresh investments will not go through, nor will they be able to redeem the money.
These investors must complete a new KYC process by submitting any of the OVDs to either a mutual fund house, KRA (KYC Registration Agency), or mutual fund platform. “All investors whose KYCs are on hold have to do it all over again,” asserts Amol Joshi, Founder, PlanRupee Investment Services. Once their KYC status is updated to ‘validated’, they can start transacting again.
Meanwhile, numerous other investors are tagged under the ‘KYC registered’ status. These are the investors whose initial KYCs were either based on physical Aadhaar or a non-Aadhaar OVD (which could not be validated by the issuing authority), but both their mobile numbers and e-mail IDs have been validated by the KRA. While these individuals can proceed with transactions involving fund houses with which they already hold folios, newer fund houses will be inaccessible to them.
To gain access to all fund houses, such investors must secure a ‘KYC validated’ status against their MF investments. This can only be achieved by submitting any of the officially valid documents as identity/address proof. This modification in KYC can be done by submitting a request with the KRA or mutual fund portal. If it is done via any one fund house, the updated KYC will reflect in all the mutual fund investments mapped to the PAN.
KYC system in total disarray
Investors are discovering that KYC issues run deeper than anticipated. Even if they had submitted revised OVDs previously, the KYC could still be deemed invalid. “Many KRAs are not able to validate a KYC despite the investor sharing Aadhaar or passport as identity proof,” observes Mahesh Mirpuri, a mutual fund distributor. If you use other than Aadhaar OVD, you will still have to do re-KYC every time you invest with a new fund house.Additionally, various KRAs have differing sets of acceptable OVDs, impacting the validation of KYC. For instance, while KFintech accepts a driving licence as an OVD, CAMS does not. Attempting a re-KYC or KYC modification itself is a test of sanity for many. Distributors and financial advisers point to a litany of problems in re-doing a KYC. First, the investors whose PAN and Aadhaar are not linked can’t update their KYC. The two need to be linked before any modifications are allowed. Second, some KYC modification requests face rejection for minor discrepancies like differences in usage of upper case and lower case in names or addresses. This forces one to undertake multiple rounds of KYC modifications for validation.
Note:After 30 April, KRAs are also expected to start checking for mismatches between KYCs and PANs of unitholders. Any mismatch could invite problems.
Even while conducting the process online, investors can get stuck. “Even the online KYC is broken,” quips Joshi. He points to a case of a client whose online request for KYC modification was rejected citing ‘unmasked’ Aadhaar and ineligible address. “Why can’t the KRAs ‘mask’ Aadhaar in their records instead of keeping the KYC on hold?” Joshi asks. Senior citizens and do-it-yourself (DIY) investors, who do not have the support of intermediaries, could possibly face a harrowing task to get the KYC sorted. Mirpuri reckons the present KYC rules are bizarre. “What does e-mail ID have to do with KYC? If Aadhaar accepts a bank statement as identity proof, how is it that Aadhaar-based KYC does not recognise it?” he asks.
Your KYC status may have changed
From 1 April, your KYC may have become invalid depending on the type of proof submitted, among other factors.
Leading voices from the MF industry have expressed frustration over the chaos around KYC. After receiving an e-mail from a KRA putting his KYC ‘on hold’, Nilesh Shah, MD, Kotak Mutual Fund, vented on X (previously Twitter), “After three decades in the market and filling every form for KYC over the years, including biometric verification, my heart pains to receive such e-mail. How many times does the KYC need to be done? Clearly our KRA agencies/Registrar can do a better job.”
Radhika Gupta, MD and CEO, Edelweiss Mutual Fund, also posted on X: “KYC is a problem crying to be fixed as of yesterday. In a world where we have Aadhaar and some of the best digital public infrastructure in the world, it also seems very doable.”
MF investors’ KYC troubles don’t stop here. After 30 April, KRAs are expected to start checking for mismatches between KYCs and PANs of unitholders. Any mismatch found in the name or date of birth of the investor in PAN and MF folio could invite problems. Joshi warns, “Expect another round of KYC-related hiccups when MFs start validating the name and date of birth in folios against the given PAN.”
Despite the many shortcomings in the KYC process, investors should try and get it sorted at the earliest to avoid having their money frozen when they need it the most.
