Confusion galore for customers to comply with KYC norms

Since February 1 this year, investors in mutual funds putting in Rs 50,000 and above are required to get a know-your-customer (KYC) compliance certificate from the Central Depository Services Limited (CDSL) Ventures. The basic idea behind introducing this was to comply with Prevention of Money Laundering Act guidelines.

However, six months later, both investors and asset management companies (AMCs) are struggling with the new norms. The reason: confusion over who qualifies as an attesting authority, besides other requirements.

For instance, when Dr Gulshan Shahpurkar submitted her documents for the KYC process, CDSL rejected it on grounds that the documents were attested by the branch manager of a cooperative bank – the Bombay Mercantile Bank. Finally, an HDFC Bank’s branch manager came to her rescue by signing the document. Interesting, some private sector banks do not attest the document. Instead, they offer to give a document with the residence address and PAN card number, according to their records. Unfortunately, that does not work for CDSL.

Shahpurkar’s story is not uncommon. To get the KYC certificate, investors need to produce proof of identity (PAN card, passport and driving licence) and proof of address. However, according to mutual fund distributors, it is getting quite difficult for many small investors to obtain a clean chit from CDSL.

“The biggest problem is getting the document attested. As per the guidelines, only a gazetted officer, a notary or a bank manager can attest documents. While most bank account holders try to get it attested by their respective branch managers, there is confusion over which bank branch managers’ signatures are acceptable,” said Suresh Sadagopan, a certified financial planner.

As a result, many investors have either missed or delayed their investments. Gautam Chudhiwala, investor, lamented, “I received the certificate after applying for three times.” And, anticipating that he may not get the clearance, he split his investment in amounts of less than Rs 50,000 and purchased units on different days in the third month.

It is not just about attestation of certificates. M R Bharat, senior vice president, Global Tele-Systems, found that without a marriage certificate, his wife could not become a co-investor. “Though I did not have the marriage certificate, I had given all other required documents for her KYC such as my passport that mentions her as my wife,” said Bharat. But that did not cut any ice with CDSL. Finally, instead of making her a co-investor, Bharat had to make her a nominee.

And that is not all. Even after the CDSL approval, many AMCs ask for a PAN card. An UTI official claimed that this is because the market regulator has made it mandatory that every transaction should include a PAN card copy.

However, A P Kurian, Chairman, Association of Mutual Funds in India (AMFI), clarified that once the KYC document is attached, a person need not give a PAN card copy. According to him, even though certain norms have been tightened, the guidelines per se do not force the funds to insist on the KYC certificate. “But, if not done, it is not in the spirit of the norms,” he added.

The solution, as of now, has come from distributors. Most of them get the document notarised for their clients instead of asking them to get it done themselves.