Everything You Want to Know About KYC for Mutual Funds

Published On: 07-May-2020

KYC stands for 'Know Your Customer' and is one of the obligations every investor must fulfil before investing in mutual funds. Through the KYC process, the market participants fetch relevant records of the investors to establish a unique identity for the investors in the mutual funds' records. 

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KYC compliance has been made mandatory under the Prevention of Money Laundering Act, 2002 and SEBI (Securities & Exchange Board of India) guidelines. Even in the case of existing non-KYC complied cases, no further financial transaction can take place as per the regulatory requirements. The mutual funds use KYC records to link the mutual fund investments to different investors. Further, the maintenance of such KYC records on centralised basis enables the regulator/ depositories to consolidate the mutual fund investments across the fund houses to provide a Consolidated Account Statement to the investors reflecting mutual fund and equity transactions. 

The KYC Process

Investors undertake the KYC process by duly filled KYC form at the Official Points of Acceptance (POA) for mutual fund investments, including the transaction points for mutual fund houses and the Registrar & Transfer Agents (R&TA), etc. Along with the form, the investor must submit the Proof of Identity as well as Proof of Address as per the list of prescribed documents. The documents submitted must be self-attested or attested by the competent authority as per the regulations. 

Once the investor initiates the investment transaction at the website of the fund house, the KYC compliance status is validated, and the transaction proceeds further only if the KYC is verified. If the investor has not completed the KYC process, it can be completed through in-person video verification facility, if available. In case such facility is not available, the KYC compliance needs to be undertaken by submission of documents at the authorised Points of Acceptance along with in-person verification. 

When the investor is a minor, the guardian initiating the investment transaction must complete the KYC compliance. The minor will be required to complete the KYC process once he/ she reaches the age of majority. Further, in case of investments with joint holding, all the joint investors need to undertake the KYC compliance.

List of Documents eligible as Proof of Identity 

Following documents (any one of these) can be submitted as proof of identity:

  1. PAN Card with photograph – mandatory requirement, unless the investor is exempt from having a PAN as per the Income-tax rules

  2. Aadhaar card

  3. Passport

  4. Voter ID Card

  5. Driving License

  6. Identity Card with photo issued by Central Govt./ State Govt./ Statutory authorities/ Regulatory authorities/ Public Sector Undertakings etc. 

List of Documents eligible as Proof of Address

Following documents (any one of these) can be submitted as address proof:

  1. Passport

  2. Voter ID Card

  3. Ration Card

  4. Registered Lease Agreement

  5. Driving License

  6. Utility bills like landline telephone, electricity, gas, etc. not more than three months old

  7. Bank account statement/ passbook not more than three months old

  8. Identity Card with photo issued by Central Govt./ State Govt./ Statutory authorities/ Regulatory authorities/ Public Sector Undertakings etc.

Can one invest in Mutual Funds without KYC Compliance?

KYC Compliance is mandatory for the investors to undertake the investment transaction. In case the investor is not KYC compliant, the investment transaction is liable to be rejected by the fund house.

Is KYC required to be done at the time of each mutual fund transaction?

Since KYC records are maintained by a central repository, undertaking KYC registration is a one-time exercise. This applies across different financial market intermediaries, including mutual funds, stock broking companies, etc. Further, if one has gone through the KYC process with one fund house, he/ she is not required to undertake such process again, and the existing KYC registration stands valid for other fund houses 

As may be noticed above, KYC processes have been simplified by the regulators to make the investment process easier and convenient for the investors. KYC registration is indeed the first step towards investing in mutual funds. Undertake that process right away, if not yet completed till now.