Nilekani panel recommends simplifying KYC process for mutual fund investing

Proposes allowing MF investing with KYC-compliant bank account; move will help penetration in B-30 markets

The Reserve Bank of India’s (RBI’s) committee — led by Infosys co-founder Nandan Nilekani — has recommended simplifying the know-your-customer (KYC) process for mutual fund (MF) investing. The committee has said that a KYC-compliant bank account can be used for opening an MF account, provided the investment and refund are routed through the same account. 

Industry experts say the move will ease KYC compliance for MF investors and give fillip to MF penetration ‘beyond the top 30’ cities — widely-known as ‘B30 cities’ in industry parlance.  

The high-level committee on deepening of digital payments in its report said: “There are various use cases, where the industry could comply with the Prevention of Money Laundering Act requirements without friction... for certain use cases, a simple KYC process may be used... for instance, opening an MF account by funding it from a KYC-compliant bank account.” 

The committee also pointed that it had received presentations from the industry body — Association of Mutual Funds in India — while making the report.

“This is quite a positive idea, particularly if it takes away the onerous responsibility to cross-verify KYC by MFs. This can make the investment process very smooth and provide greater ease to investors,” said Ashutosh Bishnoi, managing director and chief executive officer (CEO) of Mahindra MF, which is a semi-urban, rural market-focused fund house. 

According to industry players, if the proposal is implemented, it could open up a large opportunity for the MF industry. 

“Onboarding an investor is more difficult in smaller cities and towns. However, over the past few years, several bank accounts have been opened in these locations, which can turn into a ready market base for the industry. We could even open zero-base folios for these bank account holders free of charge,” said a CEO of a fund house. 

The total number of account holders under the Pradhan Mantri Jan-Dhan Yojana — the government’s financial inclusion programme — stood at 357 million, according to the latest tally. Experts say if these accounts are made compliant, it would help the MF industry scale up faster, from its current tally of 82.7 million accounts, and further bring down compliance costs. “The proposed changes could also make life easier for fintech firms, which are trying to come to terms with the discontinuation of Aadhar-based KYC,” the executive said.  

At the end of April 31, 2019, the MF industry assets were at Rs 24.78 trillion. The number of accounts related to systematic investment plans — commonly used by retail or small-ticket investors — stood at 26 million at the end of March.