KYC Regulations Update: Comprehensive Guide

1.3 crore mutual fund accounts are on hold in India due to incomplete KYC, which means they cannot currently be used to buy or sell mutual funds. But why did this happen? This blog will answer all your questions regarding KYC and its issues.

Overview

KYC stands for Know Your Customer. It is a set of regulations and procedures financial institutions, including mutual funds, use to verify customers’ identities and assess their risks. Verifying customers’ identities is a crucial measure to prevent fraudulent activities, money laundering, and the financing of terrorist activities. Financial institutions ensure that their customers are not engaging in business activities with criminals or suspicious individuals by verifying their identities.

It protects institutions from legal and financial risks linked with illegal activities, and KYC safeguards retail investments and reduces the chance of someone else accessing the investor’s account.

Changes in KYC Regulations by SEBI

Documents

The following documents are required when doing a KYC.

Proof of Identity (POI) – this could be your PAN card, Adhar card, Voter ID, or passport.

Proof of Address (POA) – this could be your Adhar card, utility bills, bank statements, etc.

Overview of Updated Regulations

The capital markets regulator, the Securities and Exchange Board of India (SEBI), has modified the roster of documents permissible for KYC compliance. These updated KYC regulations have been enforced since April 1, 2024. In its master circular, SEBI provided a list of valid documents for the POI and POA. 

According to the circular, investors with outdated and inaccurate details will keep their mutual fund accounts on hold. These outdated documents mainly consist of older bank statements and utility bills. 

However, SEBI has clarified that bank statements and utility bills issued within two months are still accepted as proof of address if other documents don’t contain an updated address.

Updated List of Permissible Documents

Here’s the list of documents that are now accepted as POI and POA,

• The passport
• The driving licences
• Proof of possession of Aadhaar number
• The Voter’s Identity Card issued by Election Commission of India
• Job card issued by NREGA duly signed by an officer of the State Government
• The letter issued by the National Population Register containing details of name and address
• Any other document as notified by the Central Government in consultation with the Regulator

Furthermore, suppose the OVD (Official Valid Document) provided by the client does not contain an updated address. In that case, they must submit officially updated valid documents or e-documents within three months. The following documents are allowed to be submitted.   

• Utility bills (electricity, telephone, post-paid mobile phone, piped gas, water bill) that are not more than two months old.
• Pension or family pension payment orders (PPOs) issued to retired employees by Government Departments or Public Sector Undertakings, if they contain the address.
• Letter of allotment of accommodation from employer issued by state or central government departments, statutory or regulatory bodies, public sector undertakings, scheduled commercial banks, financial institutions, and listed companies

Additionally, SEBI has mandated registered intermediaries to regularly and systematically update all the documents and information about every client collected as part of the Customer Due Diligence (CDD) process.

How to Check KYC Status Online?

To check your KYC Status online, follow these steps

1. Visit any KYC Registration Agency (KRA), such as CDSL KRA, CAMS CRA, or CVL KRA.
2. Suppose you have selected CAMS KRA, click on transactions, and then choose KYC. A new web page will pop up.
3. Enter your PAN details, and the status will be displayed on the screen.

One of the 3 statuses will be displayed on the screen. The status decides your restrictions, if any. Here is a list of the KYC statuses and their implications. 

Explanation of Various KYC Status

Validated KYC Status

This means that the issuing source has validated the investor-provided documents, and if the information is not modified, a mutual fund investor is allowed to invest readily in any scheme.

Registered/Verified KYC Status

This means that the documents provided by the person cannot be verified or confirmed by the issuing authority. This applies to investors who have provided other officially valid documents (OVDs) besides PAN or Adhaar, such as passports, voter ID cards, etc., to validate address and identity during the KYC.

If the KYC status is either ‘KYC registered’ or ‘KYC verified,’ it will not affect their current investments. However, if they wish to invest in a new mutual fund scheme, they are required to submit the KYC-related documents again. They can undergo a re-KYC process to transition to Validated KYC status.

KYC on Hold Status

The KYC status will be put on hold if the documents submitted at the time of the initial KYC are not official valid documents, such as voter ID cards, passports etc., but rather unofficial documents like bank statements, electricity bills, and utility bills. The issue may also arise if the investor’s mobile number and email ID still need to be validated. 

All financial and non-financial transactions will be restricted until the required documents are submitted. This would impact the existing SIP transactions, redemption, etc.

Conclusion

A complete and up-to-date KYC is necessary for seamless access to your mutual fund account in India, as it protects the financial system from fraudulent activities. If your KYC needs to be completed, gather the essential documents to resolve the issue. A valid KYC status can help you avoid restrictions and participate actively in the Indian mutual fund market to achieve your financial goals.

Frequently Asked Questions (FAQs)