KYC norms for MF investors: The Securities and Exchange Board of India (Sebi) has eased the Know Your Customer (KYC) process for mutual fund investors by removing the requirement to link their permanent account number (PAN) with Aadhaar. The change allows investors to achieve a ‘KYC-registered’ status for mutual fund transactions. However, for unrestricted transactions across all fund houses, a ‘KYC-validated’ status, which requires PAN to be linked with Aadhaar, is still necessary. A KYC-registered status permits transactions only with the fund houses where the investor already has investments.

Following the implementation of mutual fund KYC (Know Your Customer) rules on April 1, approximately 13 million accounts were suspended due to incomplete KYC, with about 3 per cent of mutual fund accounts marked with a ‘KYC hold’ status.

Neeraj Gaurh, Senior Vice President and Fund Manager at Axis Securities PMS, noted, "This is a relief for mutual fund investors, but the KYC-registered status has its limitations. More investors are linking their PAN with Aadhaar to enjoy unrestricted transactions across fund houses." However, he added that this development benefits those who prefer to keep things simple with their existing fund houses.

The KYC process, mandated for banks, fund houses, and stock brokers, verifies an investor’s identity to prevent fraudulent activities. In October 2023, Sebi mandated that all mutual fund investors link their PAN with Aadhaar to complete the KYC process by March 31, 2024. Failure to do so would result in the KYC process being put on hold, halting all investment activities, including systematic investment plans (SIPs) and lump sum purchases.

The mandate led to the temporary suspension of numerous mutual fund accounts that had completed KYC using alternative documents like a bank passbook or account statement as proof of address, dating back to a time when non-Aadhaar and non-officially valid documents were accepted for KYC registration.

Under the revised circular in the risk management framework, Sebi has instructed KYC registration agency (KRA) websites to verify three attributes of all clients' records—PAN, name, and address—within two days of receiving the information, eliminating the need to check the PAN and Aadhaar linkage.

Investors can obtain the “KYC-registered” status by completing KYC with other Officially Valid Documents (OVDs) such as an Aadhaar, passport, driving licence, or voter ID card.