 "KYC know your costumer")
Many investors are facing a rude awakening – their mutual fund accounts are frozen due to outdated KYC (Know Your Customer) information.
KYC stands for "Know Your Customer." It's a process where banks and investment companies check your ID and address to make sure you're really who you say you are and to prevent fraud. Since April 1, distributors, advisors, and investors have been scrambling to get their KYC in order. These rules seem to have particularly affected newer fund houses launching new investment schemes (NFOs).
KYC stands for "Know Your Customer." It's a process where banks and investment companies check your ID and address to make sure you're really who you say you are and to prevent fraud. Since April 1, distributors, advisors, and investors have been scrambling to get their KYC in order. These rules seem to have particularly affected newer fund houses launching new investment schemes (NFOs).
On Monday, TRUST Mutual Fund said its maiden equity offering, TRUSTMF Flexi Cap Fund (an open-ended dynamic equity scheme investing across large cap, mid cap, small cap stocks), garnered Rs 510.59 crore in assets under management (AUM) at the close of its NFO period. Word on the street is that the new KYC norms have put newer fund houses at a disadvantage when it comes to attracting investors for their new fund offerings (NFOs). Even PGIM Retirement Fund, which offers investment options focused on multiple sectors (multi-cap) managed to collect only Rs 45 crore. Industry experts believe a big reason for this is the confusion surrounding the new KYC rules. PGIM Retirement Fund was reportedly hoping to raise more money from investors, but because of the confusion caused by the new KYC rules, many applications were rejected, which resulted in them collecting less money than they had anticipated.
What's changed?
The Securities and Exchange Board of India (SEBI) recently updated the KYC requirements for mutual funds.
" Some of the documents, you may have submitted long time back for your original KYC like Bank Statements and Utility Bills are no longer considered officially valid documents (OVDs) by SEBI. In such a case, you need to do your KYC again with any of the current valid list of OVDs like Aadhaar, Passport or Voter ID," said Vipin Gupta, founder of Aman Capital.
" Some of the documents, you may have submitted long time back for your original KYC like Bank Statements and Utility Bills are no longer considered officially valid documents (OVDs) by SEBI. In such a case, you need to do your KYC again with any of the current valid list of OVDs like Aadhaar, Passport or Voter ID," said Vipin Gupta, founder of Aman Capital.
Sebi asked KYC registration agencies (KRAs) to verify the KYC (Know Your Customer) details of existing mutual fund investors. This verification involved checking details like PAN, name, address, mobile number, and email ID. The goal was to ensure these investor records matched information in official databases like Income Tax and Aadhaar (government ID system) based on PAN card details.
What went wrong?
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Verification revealed discrepancies in the records of many investors. This means some KYC details might have been outdated, inaccurate, or incomplete. Investors with mismatched KYC information could face disruptions in their mutual fund transactions. This might include:
Difficulty buying new units in existing schemes.
Inability to switch between different schemes within the same fund house.
Challenges redeeming existing investments (although some limitations might apply).
The controversy:
The sudden verification process and potential disruptions to investments caused confusion and frustration among investors. Some investors might not have been aware of any discrepancies in their KYC details until this verification exercise.The tight deadlines for updating KYC information added to the pressure and inconvenience for investors.
The new KYC rules are like gatekeepers. Investors with "validated" KYC (existing investors) can easily enter the NFO party of any fund house. But those with "registered" KYC (new investors) face an extra check by the gatekeeper for new fund houses, potentially making them skip the party altogether. This situation puts newer houses at a disadvantage because they can't easily reach new investors.
How does an investor check his MF KYC status?
You could go to www.cvlkra.com and click on KYC inquiry to understand the status of your existing MF KYC. You will get the following three results :
KYC Validated: This means your KYC is up-to-date using Aadhaar, along with a verified mobile number and email address.
KYC Registered: KYC was done using documents other than Aadhaar, but may need an update.
KYC on Hold: This means your investments are frozen due to incomplete KYC information. You cannot transact until your KYC is re-done.
What You Need to Do:
If your KYC is validated: You can continue investing as usual.
If your KYC is registered: You can continue existing investments, but need to re-do your KYC if you want to invest with a new fund house. For investors who don't want to use Aadhaar, this means re-doing KYC with each individual fund house (44 AMCs in total).
If your KYC is on hold: You cannot make any transactions until you re-do your KYC using Aadhaar for seamless future investments across all mutual funds.
How to Re-Do Your KYC:
On Hold: You'll need to submit a physical KYC form. This can be done either by:
Visiting a branch office of one of your mutual fund houses (AMCs).
Submitting the form to the Registrar and Transfer Agent (RTA) handling your mutual fund investments.
Registered or Rejected: Here's the good news! You can potentially re-do your KYC online for these statuses. This can be done on the website of "any one fund house." Once you complete the online re-KYC, the updated information will be reflected across all your mutual fund investments, regardless of the fund house.
Impact on NFOs: These rules seem to have a bigger impact on newer fund houses compared to established players. The new KYC process classifies investor status as "validated" or "registered." Investors who already have a "validated" KYC status with established fund houses can easily invest in NFOs launched by newer houses. However, investors with "registered" KYC (typically new investors) have to go through a fresh KYC process if they want to invest in a new fund offer. This additional step can be time-consuming and discourage them from participating in NFOs of newer players.
Why the confusion? Investors who are already KYC compliant with other fund houses (have existing investments) might not understand why they need extra documentation to invest in a new fund house.
In simpler terms: Imagine you have a library card that lets you borrow books from one library. The new rules are like saying you need a separate library card, with extra paperwork, to borrow books from a different library even though you already have a valid library card. This is confusing for everyone involved.
