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Last Updated : Aug 24, 2019 03:58 PM IST | Source:

Aadhaar-based KYC – Smooth on-boarding awaits MF investors

Customers having Aadhaar can now invest in mutual funds after completing authentication online

Clearing the know-your-customer (KYC) hurdle before investing in mutual funds is all set to become easier once again for new entrants, with the finance minister announcing on Friday that Aadhaar-based on-boarding of investors would be allowed. The Supreme Court had barred the forced use of Aadhaar in September last year, except for availing select government subsidies and for pensions. Since then, fund houses had to rely on a paper-based mode of KYC, and therefore customers had to submit soft or hard copies of PAN (permanent account number) and address proof etc. before being allowed to invest. The finance minister had indicated that the required regulatory changes would be made by the government.

As expected, the mutual fund industry has welcomed the move.

“Allowing e-KYC based on Aadhaar will definitely work in favour of first-time mutual fund investors, as a large number of individuals having Aadhaar can now invest in mutual funds after completing authentication online. They need not apply for permanent account number (PAN) and go through the time consuming offline process,” said Swarup Mohanty, chief executive officer, Mirae Asset Global Investment India.


Aadhaar makes it seamless

The Unique Identification Authority of India (UIDAI) portal shows that, as on June 30, 2019, 88.9 percent population of India was covered under Aadhaar.

After physical submission of document copies, photos etc. investors had to go through the in-person verification as a part of their KYC process before being allowed to invest in funds. These steps used to take four to five days to complete the KYC and on-board an investor.

In December 2016, Reserve Bank of India allowed e-KYC using the Aadhaar-based OTP (one time password) authentication system. After the Aadhaar based e-KYC was introduced, the financial institutions could complete the process using second level authentication by sending an OTP to the Aadhaar holder’s mobile number. In October 2018, however, the Supreme Court disallowed the use of Aadhaar for such purposes. That meant investors had to go back to the old system of in-person verification.

Friday’s announcement comes as a big relief for investors and works as a large enabler for the mutual fund and distribution industries. “After the introduction of Aadhaar based KYC, the turn-around time to open and activate an investment account for the investor will be drastically reduced from four-five days to one-day. The costs associated with physical movement of the documents will also go down significantly,” says Anupam Agal, Head–Operations, Motilal Oswal Financial Services.

But he did add on the need for more clarity. “Though this step brings in a lot of efficiency in the operational processes resulting in growth for the business, we will await for further clarification from the regulator and stock exchanges in this regard,” Anupam added.

Mutual funds accept investments by way of cheques or online transfer from a bank account. “If the bank account is linked to Aadhaar and the individual holding the same Aadhaar is authenticating the e-KYC using an OTP, then it will be a seamless process and can be carried out online quickly. PMLA and other regulations need to undergo necessary changes to make it effective,” says Swarup.

This move will also be a big positive for do-it-yourself retail investors who were keen to invest in direct plans of the mutual funds. Paper-based KYC was always time consuming and though there were means such as video-based in-person verification, it was a cumbersome experience consuming much more time compared to Aadhaar based e-KYC.
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First Published on Aug 24, 2019 03:58 pm
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