Thinking of KBC, stumped by KYC? Some answers for MF investors

Folios of several mutual fund investors have been frozen since April citing non-compliance with Know Your Customer (KYC) norms. ET takes a look at what went wrong and how to rectify it if you are an affected investor:

What is the controversy around the MF KYC non-compliance?
The Securities and Exchange Board of India, India’s capital markets regulator, asked KYC registration agencies (KRAs) to verify mutual fund unitholders’ KYC based on PAN, name, address, mobile number, and email IDs. The exercise intended to match and validate investors’ records with official databases such as the Income Tax (IT) database based on PAN and Aadhaar card. It was found out that the records of several investors – especially the old-timers – who did the KYC through documents other than PAN or Aadhaar could not be validated. So, such investors have been asked to redo their KYC.

What problems MF unitholders are facing in the renewed KYC process?
While the process of doing KYC once again looks simple, investors, distributors, and investment advisors have been complaining that even after submitting the required documents for KYC, there are delays in updating them at the KRAs’ end. Unless the KYC is approved, the AMC could reject your application for fresh investments.

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 :

1) KYC Validated: If this is the status, you are good to go. As per data from KRA agencies, 73% of investors fall in this category.

2) KYC Registered: This means the KYC documents provided by the investor cannot be directly verified based on the documents provided. However, aspects such as email and mobile number are validated, which means you can continue to invest in MFs where you already have investments. But if you wish to open a new folio with a new fund house, a fresh set of KYC documents is required. 15% of the investors fall into this category.

There is a benefit for those holding mutual fund units in demat form here. They can continue to transact with any AMC. However, they cannot open an account with another intermediary.

3) KYC On Hold: These are cases where PAN-Aadhaar seeding has not been done, email and mobile validation has failed, or the KYC was done without an officially valid document like a bank statement or utility bill. Here an investor needs to complete ‘PAN-Aadhaar Seeding’ in Income Tax records to make the PAN operational and redo KYC. Once that is done, she can share her updated email and mobile number with the fund house and lodge a modification request with the KRA, who will then update the status. 12% investors are currently under this category.

How could investors resolve this problem?
Although KYC is allowed with officially valid documents including passport, driving licence and voter ID, distributors believe investors should do it with Aadhaar. KRAs cannot cross-verify data in a passport and hence KYC cannot move to validated status. Other details like PAN can be verified from the Income Tax portal. Mobile numbers and emails can be verified through OTPs on mobile and emails.

What problems NRIs are facing?
As per distributors, NRIs face the maximum problem as they are not mandated to have an Aadhaar card, while many do not have an Indian mobile number where OTP comes for authentication. Due to this, NRI investors without Aadhaar will see their KYC status in the ‘Registered’ category and this is unlikely to change. According to distributors, as of now, NRIs have been advised to do their KYC every time they decide to invest in a new fund house, but confusion exists whether without “KYC Validated” status, AMCs will accept the investment in a new folio or not.