TRUSTMF Flexi-Cap Fund collects Rs 510 cr amid KYC mess

KYC registered — non-Aadhaar based KYC, mobile and email validated, you can only invest in fund houses where you are currently invested. You need to re-do your KYC if you wish to invest in new fund houses.

KYC on-hold — PAN-Aadhaar seeding not done, or email and phone are incorrect; you cannot do any MF transactions and you need to re-do your KYC.

KYC rejected — this is your KYC  status if your `KYC on hold’ status continues for 10-15 days; you cannot do any MF transactions and you need to re-do your KYC.

Much confusion and rejection 

Industry insiders say the new KYC norms have impacted newer fund houses more, as most seasoned / existing investors wouldn’t have invested in these fund houses, yet. TRUSTMF Flexi Cap fund appears to have been caught in this mess as its NFO opened on April 5. Regular or existing MF investors, whose KYC status was `validated’ could easily invest in NFOs of newer fund houses like Trust MF. But those whose KYC status was ‘registered’ had to do a fresh KYC when investing in a fund house where they had never invested before. Since a bulk of MF investors fell in this category — at least at the start of April — this, experts say, was one of the reasons behind the low collections.

``The newer fund houses have been impacted by the KYC rule; many investors and distributors have been complaining that getting the KYC status `validated’ takes a lot of time,” says the Chief Executive Officer (CEO) of a mid-size fund house who spoke on condition of anonymity.

"There was a lot of confusion over the new KYC requirements in the minds of distributors and investors. It was difficult to explain why the investor is KYC compliant with an AMC where he/she has an existing folio, but requires additional documentation when investing for the first time with us. Our distributors worked shoulder-to-shoulder with our sales team to ensure that the maximum number of applications were accepted. I feel bad that a few had to be rejected in spite of our best efforts. I hope that greater clarity will emerge soon to ensure a uniform experience for the mutual fund investor,” says Sandeep Bagla, CEO, TRUST Mutual Fund.

There were other casualties too. PGIM Retirement Fund, a multi-cap scheme whose NFO closed on April 9, collected around Rs 45 crore. Industry insiders say the fund house had to refuse applications worth at least Rs 18 crore because of the confusion over the new KYC rules. Ajit Menon, CEO, PGIM Asset Management Co, refused to divulge the numbers lost due to the on-going KYC mess.

Great expectations 

Although Rs 510 crore isn’t the lowest collection among active funds, it may be a tad underwhelming given that the fund was launched with much fanfare about  its unique stock-picking style — the Gorilla approach, or terminal value investing. The fund house counts Utpal Sheth, CEO of RARE Enterprises, as one of its AMC’s directors. RARE Enterprises is a privately owned stock trading firm founded by Rakesh Jhunjhunwala. Although Sheth is not part of the fund’s management and will have no role to play in stockpicking, his presence on the AMC’s board and shared philosophies, especially stock selection based on the terminal value investing approach, lent confidence to distributors and investors.

Not just KYC

Tata MF, India’s 11th largest fund house with assets under management (AUM) worth Rs 1.49 trillion, had launched six passive funds on April 8; their NFO ended on April 22. Industry players say the six schemes collectively collected around Rs 250-300 crore, with some having collected less than Rs 100 crore. The fund house didn’t share the collection figures with us.

There may be other reasons besides the new KYC norms for the low collections. The PGIM Retirement Fund comes with a 5-year lock-in. That could be one reason why the scheme has limited appeal. Menon said that PGIM Retirement Fund's NFO was during the end of the previous financial year and the beginning of the new financial year. "That's usually the time when people think of tax-saving products like insurance. Holidays at the time also kept investors away," he adds.

Menon and PGIM MF have been doing a lot of homework around retirement funds through investors surveys and awareness programs all over the country, and are keen to revive this sedate segment and popularise long-time retirement products through the mutual fund route, which have so far been the bastion of insurance companies.

“Our research on the subject of retirement has given us new insights that we believe will help both investors and advisors. We plan to eventually be a leader in the category," says Menon.

On the other hand, the Tata MF new launches were sectoral index funds, which generally see low inflows in the NFO stage.

An analysis of NFO trends since January 2023 shows that NFO collections have dwindled in March and April 2024. Among other things, the trend shows that passive funds see lesser inflows than active funds; which could be a key reason behind the low collections  of Tata MF’s six index funds.

On April 24, the five MF KYC registration agencies (KRAs) reported that nearly 73 percent of KYC records are classified as ‘validated,’ 15 percent as ‘registered,’ and the balance 12 percent as ‘on-hold.’ On the ground, many distributors are still reporting delays and difficulties in getting their investors’ KYC status validated, especially of NRI customers.