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SEBI Eases KYC Formalities for Mutual Funds: PAN-Aadhaar Link Rule Withdrawn

Last updated: 20 May 2024

Mutual fund investors can breathe easy for now. The capital market regulator, SEBI, has withdrawn the requirement to link PAN with Aadhaar for obtaining 'KYC registered' status for mutual fund transactions. This change, announced in a circular on May 14, 2024, means investors can continue their transactions without submitting additional documents.

SEBI Eases KYC Formalities for Mutual Funds: PAN-Aadhaar Link Rule Withdrawn

Key Points

  • SEBI’s Circular Update: On May 14, 2024, SEBI removed the clause mandating the linkage of PAN with Aadhaar for mutual fund investors to obtain 'KYC registered' status. This decision provides immediate relief to investors struggling with KYC non-compliance issues due to non-linkage of PAN-Aadhaar.
  • Current Requirements: While the linkage is no longer required for 'KYC registered' status, it remains necessary for 'KYC validated' status. Investors seeking this status must ensure their Aadhaar is linked with their PAN.
  • Background: In October 2023, SEBI had mandated all mutual fund investors to link their PAN with Aadhaar by March 31, 2024. Failure to comply would halt the KYC process, preventing investment activities. KYC could alternatively be completed using a bank passbook or account statement as address proof.
  • Impact on Investors: Mutual fund accounts with 'on-hold' status due to non-compliance are restricted from buying or selling units. This directive particularly affected NRIs who are not required to obtain Aadhaar.
  • New KYC Verification Process: SEBI has now requested KYC registration agencies to verify mutual fund unit-holders' KYC using PAN, name, address, mobile number, and email IDs. This process aims to cross-check investor details with official databases like the Income Tax database using PAN and Aadhaar cards.
  • Alternative Documents for KYC: According to the revised circular, investors can use documents such as passports and driving licenses to complete their KYC requirements, making the process more flexible.

Expert Opinion

"SEBI's decision to simplify the risk management framework for validating KYC records through KYC Registration Agencies (KRAs) is a positive step. It demonstrates the regulator's responsiveness to stakeholder feedback and their commitment to ease transactions for investors while ensuring compliance standards. By allowing KRAs to verify PAN, name, address, email, and mobile number from official databases, SEBI addresses the challenges faced by many investors and ensures proper verification of digital identities," an expert commented.

This update from SEBI is expected to enhance the investment experience for a growing number of digital platform users, ensuring a smoother and more efficient KYC process.

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