Big relief for mutual fund investors: Sebi eases Aadhaar-PAN KYC rules

Previously, Sebi mandated that all mutual fund investors link their PAN with Aadhaar to complete the KYC process

In a major relief for mutual fund investors, the Securities and Exchange Board of India (Sebi) has removed the requirement to link the Permanent Account Number (PAN) with Aadhaar to obtain "KYC-registered" status for mutual fund transactions.

What is KYC

Know Your Client (KYC) is a mandatory process for banks, fund houses, and stock brokers to verify an investor's identity before they can start investing. This process ensures that the investment entities know their clients well and can prevent fraudulent activities.

Changes in KYC requirements

In October 2023, Sebi mandated that all mutual fund investors link their PAN with Aadhaar to complete the KYC process by March 31, 2024. If PAN and Aadhaar were not linked, the KYC process would be put on hold, preventing any investment activity. Additionally, KYC could be completed using a bank passbook or account statement as proof of address.

However, these changes led to the temporary suspension of numerous mutual fund accounts. The issue reportedly affected over 13 million accounts where KYC updates were incomplete.

Reason: Individuals provided non-Aadhaar and non-officially valid documents (OVDs) during the initial KYC registration process.

Now, in a revised circular issued on May 14, Sebi has eased these requirements. Investors no longer need to link their PAN with Aadhaar to obtain "KYC-registered" status. This can be achieved by completing KYC with other Officially Valid Documents (OVDs) such as Aadhaar, passport, driving licence, or voter ID card.

For "KYC-validated" status, linking PAN and Aadhaar remains a necessity. This status signifies that the investor's KYC is based on Aadhaar, with both their mobile number and email ID validated by the KYC Registration Agency (KRA).

Old rules:

- Investors had to link their PAN with Aadhaar to complete the KYC process.

- Without this link, the KYC process would be put on hold.

New rules:

- As of 14 May, Sebi no longer requires PAN and Aadhaar to be linked for an investor to receive "KYC-registered" status.

- Investors can obtain "KYC-registered" status by completing KYC with other Officially Valid Documents (OVDs) such as Aadhaar, passport, driving licence, or voter ID card.

- To obtain "KYC-validated" status, however, PAN and Aadhaar still need to be linked.

Sebi's risk management framework

As part of Sebi's risk management framework, KYC Registration Agencies (KRAs) had to verify three attributes of all clients' records within two days of receiving information:
 

1. PAN (including PAN-Aadhaar linkage)

2. Name

3. Address

However, the May 14 circular has removed the need to check the PAN and Aadhaar linkage.

How does an investor check his MF KYC status?

You could go to www.cvlkra.com and click on KYC inquiry to understand the status of your existing MF KYC. You will get the following three results :

On-hold KYC status: Investors with on-hold KYC status cannot perform any mutual fund transactions, including systematic investment plans (SIPs), lump sum purchases, or redemption requests.

KYC-validated investors: These investors face no restrictions on transactions and can deal with all fund houses.

KYC-registered investors: They can only transact with fund houses where they already have investments.