The March 31 deadline for mutual fund (MF) investors to re-do their KYC (know your customer) is barely a few days away. As per emails sent by registrar and transfer agents (RTAs), CAMS (Computer Age Management Services) and KFin Technologies (KFintech) to mutual fund distributors (MFD), MF investors whose KYC is not based on any of the ‘officially valid documents’, must do their KYC again before March 31, 2024.
If they fail to do so, they will be not allowed to do any MF transactions – whether it be SIPs (systematic investment plan), SWPs (systematic withdrawal plan) or redemptions – from April 1.
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The officially valid documents as mentioned in these emails include Aadhaar card, passport, voter ID card, among others. KYC done based on proofs such as bank statements and utility bills will no longer hold valid after this deadline.
Note that if you invest via an MFD (in regular plans), he / she will inform you about re-doing your KYC, if needed. But if you have been investing on your own (in direct plans), you may not necessarily receive intimation.
Only one of the MFDs we spoke with was able to confirm that a few investors have received emails / SMSs informing them about this. One of the mutual fund houses, too, confirmed that they have not sent any such intimation to their investors. Questions sent to the RTAs remained unanswered.
Providing some context on the need for re-KYC, Amol Joshi, an MFD and Founder of PlanRupee Investment Services says that as per these emails, re-KYC is being done to ensure compliance with a SEBI master circular on KYC norms for security market (dated October 12, 2023) and the Prevention of Money-Laundering (Maintenance of Records) Rules, 2005.
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What MF investors can expect
Physical re-KYC: First and foremost, as highlighted by Joshi, an investor can do a re-KYC only by submitting a physical KYC form (along with the relevant documents) either to one of the mutual fund houses or the RTAs. Once that happens, this information is passed on to the KYC registration agencies (KRAs) and then the updated KYC gets reflected across all MF investments made under that PAN.
The re-KYC cannot be done online. This can be source of inconvenience for many investors.
Do you need re-KYC: Before you go ahead with updating your KYC, you first need to know whether it’s needed. This will depend on whether you had submitted an officially valid document when you first did KYC for your MF investments.
Now, some investors may clearly remember the ID proof they used for this purpose. If not, you can go to the CVL KRA website to check this (see graphic).
Rushabh Desai, an MFD and founder of Rupee With Rushabh Investment Services suggests one other way. He says investors should simply call up the mutual fund houses or RTA helplines to find out if they need to redo their KYC.
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No uniform list of officially valid documents: Leaving aside the deadline, what may be a source of some confusion is the list of the officially valid documents itself. As seen by Moneycontrol, the list of approved documents (see graphic for details) is not the same for the two RTAs. Those with investments across mutual fund houses not serviced by the same RTA need to take note of this.
Interestingly, as per the CAMS email those who have done their KYC based on a driving licence will have to re-do their KYC. On the other hand, the communication from KFintech mentions the driving licence as an officially valid document for KYC!
PAN and Aadhaar linkage not done: Pointing out an even more critical issue, Amit Bivalkar, Founder of Sapient Wealth Advisors & Brokers, an MFD, points out that there are many MF investors who have still not linked their PAN and Aadhaar. “The pan-based KYC for such investors will turn invalid after March 31. And until they link their Aadhaar with their PAN, they will not be able to update their KYC,” he says.
Desai too says, “If your PAN and Aadhaar are not linked, mutual fund houses will not recognise your PAN in their records.”
While there are a few ways to link the two IDs (can be done on the income tax portal or via SMS), this may not be that straightforward for everyone. Taking the example of armed forces personnel whose mobile numbers may change as they get posted to different locations, Bivalkar says their active mobile number may not be the one corresponding with their Aadhaar card, proving to be a hurdle for PAN Aadhaar linking.
Bank statements no longer valid: Today, investors commonly use their Aadhaar card for KYC purposes. But what about older investors who invested at a time when there was no Aadhaar card? Many used their bank passbook / bank statements, an acceptable document then, for doing KYC for their MF investments. But from March 31, 2024 these will not be considered as an officially valid document.
MFDs that we spoke with lament about the inconvenience this will cause, especially to many senior citizens. “If the bank statement gets included in the list of officially valid document, then the KYC problem will get resolved for many investors. The government wants to have a money trail (where is the money invested coming from) and this can be tracked via an investor’s bank account for which the bank would have already done the KYC,” says Bivalkar.
According to Joshi, it is difficult to answer inconvenienced investors’ question as to how the KYC done by a bank is any inferior to that required for MF investments.
Deadline drawing closer
Notwithstanding the hurdles that re-KYC may pose, if investors take this up now, do they have sufficient time to beat the March 31 deadline? Seems unlikely.
According to Joshi, KYC registration can take anywhere from two to 21 days. That said, Desai says that investors should still go ahead with re-KYC. “If it does not get completed by the March 31 deadline, the folio will be frozen for transactions. But once it gets completed, you can begin transactions once again.”
