SEBI proposes standardised process for mutual fund folio opening and first investment

The Securities and Exchange Board of India (SEBI) has proposed a uniform procedure for opening new mutual fund folios and executing the first investment, aiming to address issues faced by investors and fund houses due to incomplete Know Your Client (KYC) verification. The market regulator released a draft circular on Thursday.

Under the proposed framework, mutual fund investors will be allowed to initiate transactions only after their KYC verification is completed by the KYC Registration Agency (KRA) and their folios are marked as compliant in the KRA system. This move seeks to eliminate discrepancies arising from the current sequential verification process where folios are opened by Asset Management Companies (AMCs) before the KRA review is finalised.

The draft circular proposed by SEBI says, “First investment in a new folio shall be permitted only after KYC verification is completed by the KRA and the folio is marked as KYC compliant in the KRA system. Investors shall be informed at each stage of the KYC process through their registered email and mobile number”.

At present, AMCs conduct their internal KYC checks and proceed with investments while simultaneously forwarding investor documents to KRAs for final validation. If the KRA later identifies any discrepancy or deficiency, the folio is flagged as non-compliant. This often leads to delays and transaction blockages for investors.