MFs cheer finance ministry's move to allow Aadhar-based KYC

Industry players say decision can be key in deepening penetration levels

The Finance Minister's decision to make a slew of policy changes on Friday to give fillip to the economy, also lifted sentiments of the mutual fund (MF) industry. Nirmala Sitharaman said relevant changes will be made to allow MF investments through the Aadhar-based Know Your Customer (KYC)-route.

Industry players said that implementation of Aadhar-based KYC can revive the growth of the Rs 24-trillion MF industry. "This will lead to ease of investment and help the industry to deepen the penetration levels. It can possibly be the biggest reforms th industry has seen in recent years," said Swarup Mohanty, chief executive officer of Mirae AMC.

As things stand, the MF industry's penetration stands at 11 per cent of India's economic output or gross domestic product (GDP). This is significantly lower than other developing nations such as Brazil (59 per cent) and South Africa (49 per cent).

"This was a demand that the industry had submitted before the ministry. The move will make it easier for retail investors to access the MF products," said Radhika Gupta, chief executive officer of Edelweiss MF.

Last year, MFs and digital distribution platforms had to stop using Aadhar-based KYC after a ruling by Supreme Court termed Aadhar authentication by private companies as "unconstitutional".

Pravin Jadhav, whole-time director of Paytm Money -- an online distribution platform -- was of the view that the move to allow opening of demat accounts through Aadhar could also improve participation in stock markets. “We welcome Hon’ble Finance Minister Nirmala Sitharaman’s announcements towards improving market access with easier on-boarding via Aadhaar-based KYC for mutual funds and demat accounts. Our focus has been towards bringing incremental investors to capital markets; such initiatives have potential to double the industry size of both the MFs and the stock market in next four-five years."

According to industry players, the Government is likely to consult various intermediaries to ensure that the changes are made in such a way that the privacy concerns are also kept in mind, while ensuring ease of investing.

Digital distribution players feel that the move could bring back the fast-paced growth they had seen due to the Aadhar-based facility. "One time password-based Aadhar KYC is a quite positive step for the MF industry. We had seen the conversion rates fall after this route was stopped last year. Once this gets effective, we expect to see our conversion rates jump up by 25 per cent," said Harsh Jain, co-founder of Groww, a Bengaluru-based distribution platform.