Aadhaar-based verification and video-based in-person verification for e-KYC have made investing in mutual funds a breeze
In the last few quarters, SEBI has considerably eased the process of investing in mutual funds. Processes have been streamlined and online options have been made available for mutual fund investors. Despite all its efforts, paperwork has been the most difficult part of mutual fund investment. The paper-intensive process Know Your Customer (KYC) has been one of the biggest dampeners in mutual fund investment for investors.
For a country slated to grow at 8 per cent in the long run, the investment in stock market and mutual funds is uncharacteristically low. The major part of people's savings goes into bank deposits. To encourage investment in mutual funds, SEBI and the Government of India regularly come up with various initiatives to simplify the process. Aadhaar-based verification and video-based in-person verification for e-KYC are two such initiatives.
e-KYC norms for mutual fund investors
Recently, SEBI has allowed and facilitated e-KYC, or the electronic version of Know Your Customer.
Consequently, mutual fund investors can get their KYC formalities done online. Needless to add, since e-KYC is paperless, the process is more real-time. At the same time, existing investors in mutual funds who have completed KYC formalities offline do not need to do it again, as this process is only for new customers. However, if any new customer wishes to take the offline KYC route, they can still do so.
e-KYC can be done using Aadhaar card. If you have an Aadhaar number, you can provide the same online. The system will retrieve your data from a centralised database so that you do not need to fill up all your details. The system then sends a password or key code to your registered mobile number. You have to use this password once to verify your identity.
The drawback of e-KYC using Aadhaar card is that it limits your investment to Rs 50,000 in a year. If you want to invest more, you have to go through the normal KYC process.
Electronic In-Person Verification (e-IPV) through video chat
The market regulator, Securities and Exchange Board of India, SEBI, has made the In-Person Verification, or IPV, mandatory. In case investors want to invest more than Rs 50,000 per year, they have to go through the normal IPV procedure. However, keeping in mind the need for expediting the process, SEBI has made allowances for IPV to be done through video chat.
In this case, the investor and fund houses decide a time for the IPV, and the investor has to log in at the specified time. Once the investor logs in, the designated person from the fund house can see and get the required information.
The only limitation is the investor's knowledge in using the technology. The other problem can be the internet speed. Any hiccups in speed or gap in communication can be frustrating and undermine the process.
Need for a centralised KYC system
The KYC process is not yet convenient for investors who want to invest more than Rs 50,000 annually. They still have to go through the time-consuming process of KYC and IPV. Hence, the need for centralised KYC has never been more urgent. Instead of having different KYC for bank accounts, mutual funds, demat accounts etc., a system of a one-time and centralised KYC for all services will go a long way in broadening the base of mutual fund investors.
In a centralised system, KYC would be done once and the data would be stored at a centralised location that can be accessed by multiple agencies such as banks and fund houses. If a person wants to start investing in mutual funds, the fund house can access their data from the centralised system. This is good for both the investors and the fund houses.
The investor is saved from filling similar forms and submitting supporting documents over and over again, while the mutual fund companies get the investment into their accounts faster. The framework for centralised KYC system is ready and awaiting approval by the market regulators. Once it is implemented after approval, KYC compliance will become easier for investors. Hopefully, this will be approved sooner to facilitate higher investment in mutual funds.
Illustration: Uttam Ghosh/Rediff.com
Ajit Narasimhan is Category Head -- Savings and Investments -- BankBazaar.com