Mutual fund investors can now breathe a sigh of relief as SEBI has eased KYC formalities by withdrawing the requirement to link PAN with Aadhaar for ‘KYC registered’ status in mutual fund transactions. This move comes as a boon for those who were grappling with KYC non-compliance due to the PAN-Aadhaar linkage issue. As per the circular issued on May 14, investors can proceed with mutual fund transactions without the need to submit additional documents for now.
Background
It’s worth noting that while PAN-Aadhaar linkage is no longer mandatory for ‘KYC registered’ status, it remains a requirement for ‘KYC validated’ status. The directive issued in October 2023 mandated mutual fund investors to link their PAN with Aadhaar by March 31, 2024. Failure to comply would have halted the KYC process, consequently affecting investment activities. However, investors could alternatively complete KYC using a bank passbook or account statement as address proof.
Impact on Investors
The directive particularly impacted NRIs, as they are exempt from obtaining Aadhaar. Investors with ‘on-hold’ account status were restricted from selling or purchasing units until compliance was met.
SEBI’s Directive and Response
SEBI urged KYC registration agencies to verify mutual fund unit-holders’ KYC using PAN, name, address, mobile number, and email IDs, cross-checking them with official databases like Income Tax based on PAN and Aadhaar cards. This move aimed to streamline the KYC process and mitigate validation issues faced by investors using alternative documents.
Furthermore, SEBI’s revised circular on May 14 expanded the list of acceptable documents for KYC, now including passports and driving licenses.
Expert Opinion
Ankit Ratan, Co-founder & CEO at Signzy, applauded SEBI’s decision, emphasizing its positive impact on simplifying the risk management framework for validating KYC records through KYC Registration Agencies (KRAs). He highlighted that this decision reflects SEBI’s responsiveness to stakeholders’ feedback and commitment to ensuring ease of transacting for investors while upholding compliance standards. By enabling KRAs to verify crucial details from official databases, SEBI’s move is expected to address challenges faced by investors and facilitate the verification of digital identities, particularly crucial in the era of growing digital investments.
Conclusion
Overall, SEBI’s measures signify a progressive approach towards enhancing investor convenience and ensuring regulatory compliance in the mutual fund industry.