Know Your Customer requirements and guidelines were effective January 1st 2010 for all mutual fund investors in India, irrespective of how much amount you invest in them. If you haven’t done your KYC yet, here is a small primer on KYC guidelines, how to be complaint and why you should act on it today.
Without it, your mutual fund investments cannot progress.
Know Your Customer history
This is a process by which banks and financial institutions achieve customer identification, their address and their financial dealings. In a world full of scams, money laundering and terrorism, it is becoming increasingly important to identity customers who invest money with banks and financial companies. A bank or regulated company will not want to turn around and realize that they had a Harshad Mehta on their list of customers without knowing what he was up-to.
This was first introduced in India in 2002 by the Reserve bank of India (RBI) to identify customers before they opened a bank account. The idea was later adopted by IRDA for issuing out insurance policies to investors and later by SEBI for opening brokerage accounts. Eventually, all our financial dealings will come under KYC norms.
What has changed now ?
Before January 1st, only resident individual investors making investments of more than Rs 50,000/- in mutual funds were mandated to complete the KYC norms. This has now been taken away and effective January 1st all individuals, including NRIs, corporates, HUFs, trusts will need to be KYC compliant even if they want to invest a paltry amount of Rs 500/-. All your systematic investment planning, purchases and switches will be on hold till you complete the norms.
This is a one time process with all the mutual fund houses – so individual fund houses will not come to you separately for verification.
How to be compliant ?
The mutual fund industry has appointed CVL (CDSL Ventures Limited) (website) to drive the KYC process for investors.
You need to hand over the following documents at any points of service (POS) locations in India :
- A filled in application form (Available at the CVL website under “Downloads”)
- Your PAN card
- An address proof (passport, ration card, voter ID card, electricity bill, drivers license)
- A passport size photograph
Upon submission, the POS will verify all your documents and dispatch it to CVL. You will receive a letter of acknowledgment.
This service is free of charge as of now. A minor less than 18 years old cannot apply.
You can apply for know your customer compliance under any of the below categories and sub-categories :
|Hindu Undivided Family (HUF)s|
|Foreign Financial Institutions (FII)a|
|Association of Person|
How do I know I am complaint ?
Hop over to the CVL website at the KYC Inquiry page and enter your PAN number. A self explanatory status will be shown to you as either – complete, reject or under process. Now there is an odd “Invalid data” message that you can see sometimes. That is probably because it does not recognize your PAN number at all.
What happens after I become complaint ?
After you receive a letter of acknowledgment, you will need to submit this to fund houses. Along with the acknowledgment letter, you need to attach the list of your existing folio(s) and send it to the registrars for updation.
Post verification and status update, investors will be able to transact as usual in the mutual funds.
If you do not have a valid compliance, your investment in the mutual funds will automatically be rejected.
There is a section of the medial which has reported that customers are being harassed in the name of KYC norms. Kill Your Customer better suits the compliance is what they say.
It makes no sense to ask for another address proof if one already has a PAN card. Providing innumerable documents from customers every now and then is not being customer friendly at all. Duplication of documents is a pain one has to live with as of today.
Many investors have complained of running around to get their progress and on track. The pain of trying to make yourself compliant might be an impediment for you to go and do it in the first place. This makes less investors come in and invest - many have alleged that this does not lead to financial inclusion.
In India, it is only the mutual fund industry that has centralized KYC implementation with CVL. However, other institutions are still doing this individually and there is an overhead in terms of cost and time for each such institution to verify the customer separately every time. The customer also has to provide the same set of documentation each time to different companies.
There needs to be a smarter way of doing things. Maybe the answer is UID.