New KYC Rules: Mutual fund (MF) investors who haven’t updated their individual folios with the Aadhaar, relying instead on traditional proofs like bank statements or utility bills, face a crucial juncture. The dawn of the now ubiquitous Aadhaar system necessitates compliance for seamless transactions.
The Aadhaar-KYC Mandate
As of the fiscal year 2024-25, investors without Aadhaar-linked KYC are barred from purchasing new MF units. The Securities and Exchange Board of India (SEBI) rolled out stringent KYC regulations effective April 1, mandating Aadhaar-based verification for MF investments. Investors must verify their compliance status with KYC Registration Agencies (KRAs) like CAMS to ensure uninterrupted transactions.
SEBI’s updated KYC norms mandate “KYC Validated” status for investors to engage in MF investments seamlessly. Existing investors with “KYC Registered” or “KYC Verified” status can continue their investments but must re-submit official valid documents (OVD) for fresh investments. CAMS, as the registrar and transfer agent of mutual funds, outlines the validation process, emphasizing Aadhaar’s pivotal role in achieving “KYC Validated” status.
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Understanding the Validation Process
According to CAMS FAQs, investors with Aadhaar-linked KYC enjoy streamlined validation processes. KRAs can independently verify Proof of Address (POA) and Proof of Identity (POI) documents against source data, such as PAN database or Aadhaar XML/DigiLocker/m-Aadhaar. Successful PAN-Aadhaar linking further facilitates validation. Investors with validated status can transact seamlessly across SEBI-registered intermediaries without additional KYC documentation, provided there are no changes in existing KYC information.
For investors aiming to transition from “KYC Registered/KYC Verified” to “KYC Validated” status, Aadhaar emerges as the cornerstone. Amol Joshi, Founder of PlanRupee Investment Services, underscores the indispensability of Aadhaar in achieving validated KYC status. With Aadhaar serving as the sole OVD facilitating seamless transactions across mutual fund houses, its integration becomes imperative for investors navigating the evolving KYC landscape.
Understanding KYC Status
Effective April 1, KRAs implemented an updated KYC compliance process, categorizing investor KYCs into three groups: validated, registered, and on hold. The categorization was based on the presence of PAN, Aadhaar, email, and mobile number information.
Validated KYCs: Investors with validated KYCs are not required to take any action and can continue their investment activities.
Registered KYCs: Investors with registered KYCs can proceed with their investments but may need to undergo re-KYC if they engage with a new fund house or open a new demat account.
KYCs On Hold: Investors whose KYCs were based on invalid documents like bank statements and utility bills are placed on hold. They are restricted from further investments and may not withdraw funds until their KYC documents are updated.
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How to Check KYC Status Online
Ensure your mutual fund investments stay on track by verifying your KYC compliance status online. Simply visit the official website of CDSL Ventures Limited and enter your PAN to confirm whether you’re KYC-compliant or not.
How To Update KYC Offline?
Here is a step-by-step guide to update KYC online
Step 1. Download the KYC application form from the CDSL Ventures website.
Step 2. Fill in the required details accurately.
Step 3. Sign the form and submit a physical copy to the designated authorities or intermediaries through whom you plan to invest in mutual funds.
Step 4. Attach attested photocopies of your ID proof, residence proof, and a passport-size photo with the form.
Aadhaar-Based Biometric Option To Update KYC
If you possess an Aadhaar card, opt for Aadhaar-based KYC for added convenience. Request a visit from an official representative of the fund house or agency to collect your details.
Step 1. Submit a copy of your Aadhaar to the relevant entity.
Step 2. They will capture your fingerprints using a scanner and link them to the Aadhaar database.
Step 3. Once your fingerprints are matched with those in the database, your KYC will be validated, enabling seamless mutual fund investments.
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How To Complete KYC Online?
Here is a step-by-step guide to update KYC online
Step 1. Visit the website of a mutual fund house or KRA (KYC Registration Agency).
Step 2. Fill out the online KYC form with your details.
Step 3. Upload self-attested copies of your identity and address proof, along with a passport-size photograph.
Step 4. Ensure to present the originals for verification during the In-Person Verification (IPV) process.
By following these steps, you can ensure your KYC status remains up to date, facilitating hassle-free mutual fund investments.
Consequences of Incorrect or Incomplete Re-KYC
According to an ET report KYC status is showing ‘registered’ instead of ‘validated’ due to the use of non-Aadhaar OVDs. Such MF Investors may face restrictions when opening new mutual fund accounts or making investments, underscoring the importance of ensuring correct and complete documentation.
Risks of Non-Compliance
Failure to complete re-KYC can have dire consequences, as experienced by one of Jyoti Bhandari’s clients whose demat account was blocked, causing a high-value bond transaction to be stalled. Such incidents underscore the urgency of adhering to re-KYC deadlines to avoid financial disruptions.
Challenges and Solutions for Incorrect Re-KYC Details
The report shares instances where MF investors ‘ KYC status was put on hold or incorrect contact details were captured during re-KYC. Rectifying such errors can be cumbersome and may require additional documentation or online verification.
Safeguards Against Potential Fraud
While incorrect contact details in mutual fund KYC records can be concerning, VLA Ambala reassures that such discrepancies do not affect bank KYC records. Therefore, the risk of financial fraud is mitigated, provided individuals refrain from sharing sensitive bank information based on incorrect mutual fund KYC details.
