Shrugging off concerns over new Know-Your-Customer (KYC) norms implemented from April 1, the Indian mutual fund (MF) industry hit fresh records in terms of total assets under management (AUM), retail folios and monthly Systematic Investment Plan (SIP) inflows during the last month, showed data released by the Association of Mutual Funds of India (AMFI).
The MF industry’s net AUM hit a record high of Rs 57.26 lakh crore in April. MF folios were at an all-time high of 18.15 crore, while SIP contribution stood at a record high of Rs 20,371.47 crore in April.
There were apprehensions that MF inflows for April may take a hit as investors and distributors were bogged down by the new KYC rules that limit first-time investments in fund houses unless the KYC status is ‘Validated.’
According to AMFI, the MF industry is addressing concerns for smooth processing of the new KYC norms as more than 93 percent of accounts have achieved ‘KYC Validated’ or ‘KYC Registered’ status. Further, MF accounts having ‘KYC On-Hold’ status fell to 3 percent from 12 percent earlier.
“The system is working properly and things are moving smoothly as seen in the increase in the number of folios and SIPs,” said Venkat Chalasani, Chief Executive, AMFI.
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On April 24, the five KYC Registration Agencies (KRAs) in the Indian mutual fund industry reported that nearly 73 percent of KYC records are classified as ‘KYC Validated’, 15 percent of KYC records as ‘KYC Registered’ and the balance 12 percent as ‘KYC On-Hold’.
“Together with asset management companies, distributors and other stakeholders, we are committed to facilitating a seamless KYC validation process for all, thereby ensuring the integrity and accessibility of mutual fund investments across the board," Chalasani said.
The process
Before April 1, MF investors could fulfill their KYC mandate by submitting a bank passbook or bank account statement as the address proof. Some investors also did their KYC through their rent agreements. However, from April 1, the KYC status was put under four categories.
By doing fresh KYC via Officially Valid Documents (OVD), investors get KYC-Validated or KYC-Registered status. These OVDs are driving licence, passport, Aadhaar, and voter ID card.
An investor gets KYC-Validated status if the KYC is based on Aadhaar and both mobile number and email ID have been validated by the KRA. KYC-Registered is when an investor’s KYC is based on an ID proof other than Aadhaar and both his mobile number and email ID have been validated by the KRA.
In KYC-Validated, investors can continue with all transactions across all fund houses. While KYC-Registered investors can only continue transacting with existing fund houses that they already have investments with.
If your KYC status is on hold, you would not be able to do any of the mutual fund financial transactions, meaning investors would not be able to do systematic investment plans (SIPs) or make lumpsum purchases. Even redemption requests would not go through. The fourth one is 'KYC Rejected'.
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As per AMFI, the situation in terms of KYC validation hasn't changed drastically from April 1, as earlier there used to be two categories – KYC Verified and KYC Hold. The on-hold status of some investors continued as is after April unless they submitted the documents.
“Most transactions, around 98-99 percent, have been going through. Only those transactions, which were, in fact, put on hold earlier (before April 1), because their documents were incomplete, in these cases, transactions were not happening. This happened both in respect of investments and redemptions,” Chalasani added.
NRI investors face challenges
Acknowledging challenges faced by Non-resident Indians (NRIs) in KYC validation, Chalasani said that the industry body is looking to address their concerns.
NRI investors are stuck in two ways. It’s not mandatory for NRIs to have an Aadhaar. NRI investors without Aadhaar will see their KYC status stuck in the ‘Registered’ category forever. This means that they need to re-do their KYC every time they decide to invest in a new fund house.
For those NRIs who have an Aadhaar, mobile number verification will not work on their international phone numbers. They also need to have an Indian phone number with them.
"We are trying to come up with proper remediation while ensuring proper risk mitigation measures are put in place. We need to ensure that whatever relaxation we give is only after the risk parameter is taken care of," Chalasani added.
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