Mutual fund investors facing difficulties with KYC non-compliance due to non-linkage of PAN and Aadhaar can now breathe a sigh of relief. The Securities and Exchange Board of India (SEBI) has withdrawn the requirement to link PAN with Aadhaar for obtaining ‘KYC registered’ status for mutual fund transactions. This move means that, for now, investors can continue their transactions without submitting additional documents.
SEBI’s May 14 Circular
On May 14, SEBI issued a circular removing the mandate for investors to link their PAN with Aadhaar to achieve ‘KYC registered’ status for mutual fund transactions. However, for those aiming for ‘KYC validated’ status, the linkage of PAN with Aadhaar remains necessary.
In October 2023, SEBI had instructed all mutual fund investors to link their PAN with Aadhaar by March 31, 2024. Non-compliance would result in a halt of the KYC process, thereby stopping investment activities. SEBI also mentioned that KYC could be completed using other documents like a bank passbook or an account statement as proof of address.
Impact on Investors
The SEBI directive mainly impacted NRIs, who are not required to obtain Aadhaar. Investors with ‘on-hold’ account status due to KYC issues were unable to buy or sell mutual fund units. The regulator had previously requested KYC registration agencies to verify mutual fund unit holders’ KYC details using PAN, name, address, mobile number, and email IDs. This process aimed to cross-check investor details with official databases, such as those maintained by the Income Tax department, based on PAN and Aadhaar cards. Investors using other documents for KYC often faced validation issues and were asked to redo their KYC.
New KYC Documentation Options
SEBI’s revised circular on May 14 clarified that investors could use other documents, such as passports and driving licenses, to fulfill their KYC requirements. This change is expected to simplify the process and address the challenges many investors faced.
Industry Response
Ankit Ratan, Co-founder & CEO of Signzy, commented on SEBI’s decision, stating, “SEBI’s move to simplify the risk management framework for validating KYC records through KYC Registration Agencies (KRAs) is a positive step. It shows the regulator’s responsiveness to stakeholder feedback and their open approach to ensuring ease of transactions for investors while maintaining compliance standards.”
KRAs can now verify PAN, name, address, email, and mobile number from official databases. If these details are found to be in order, they will be considered validated records. This update is expected to ease the verification process for many investors and ensure the accurate verification of digital identities, which is increasingly important as more investors use digital platforms for investment.
