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Comply with the new KYC norms to buy mutual funds

By Tinesh Bhasin
November 04, 2015 11:00 IST
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Investors, whose status is displayed as ‘on hold’, will either need to submit the additional documents or will need to go for a new KYC. 

Starting November, if you are a new mutual fund customer, you will not be able to buy mutual funds if the Know Your Customer (KYC) is under process or on hold. 

Earlier, the fund house would process and allot the units even if this parameter wasn’t met. But now, only those customers who are KYC-verified will be able to transact.

The KYC parameters now include declaration of the gross annual income or net worth. This is applicable to both existing and new customers. 

Harshad Chetanwala, head (customer delight) at Quantum Mutual Fund, says until recently, mutual fund houses processed requests of investors if they had applied for KYC.

If it was put on hold, the person was intimated about the reasons and asked to submit missing information or documents. According to the new guidelines by the Association of Mutual Funds in India (Amfi), this is not permitted any longer.

Investors, whose status is displayed as ‘on hold’, will either need to submit the additional documents or will need to go for a new KYC. 

Also, KYC done before 2012 by CDSL Ventures Limited (CVL) might not be considered complete if the status shows ‘CVL MF KYC’.

Yatin Suvarna, head if unit operations at ICICI Prudential Mutual Fund, explains: The KYC process has gone through various changes in the past. Before 2012, CVL managed KYC for all mutual fund houses.

The Securities and Exchange Board of India (Sebi) enabled uniformity for all intermediaries (brokers, mutual funds, etc) under its purview and centralised the process by appointing KYC registration agencies (KRAs).

One important differentiation was that the KRAs also conduct in-person verification (IPV), which the CVL did not do earlier. 

Experts say if investors have not completed IPV, it’s best that they go for a completely new KYC.

The process for getting the IPV done can be tedious as it might involve a few trips between the fund houses and CVL. 

Due to the new KYC norms, many mutual fund houses are coming up with an online process, which is simpler and saves time.

Reliance Capital Asset Management and Quantum Mutual Fund have already launched e-KYC. Many others, including Motilal Oswal AMC, are in the process of doing so.

In this, the person does not need to visit the KRA centres. Investors can just go to the fund house’s website, fill in their details and download the required documents.

They can then fill the details, sign the documents, scan and upload them on the mutual fund’s website. 

For in-person verification, the fund house will schedule a video chat.

The applicant has to sign in the documents during the video chat with the fund house representative and also give a declaration. Chetanwala of Quantum says that Sebi has allowed e-IPV in such situations. 

Non residents will also need to provide additional details such as country of tax residence, taxpayer identification number, and country of birth.

Indians will also need to fill up Foreign Account Tax Compliance Act regulation (FATCA declaration, but if the country of tax residence is India, then they don't need to provide any other details.

The new regulations also mandate that the fund houses also need to capture the 'beneficial owner' of the investments.

But this applies only in case of ‘non-individual’ applicants such as companies and trusts to avoid money laundering and also to comply with the FATCA regulation.

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Tinesh Bhasin in Mumbai
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