The RBI committee headed by Dr. Tarun Ramadorai, Professor of Financial Economics, Imperial college London, has recommended waiver of KYC requirements for small ticket investors who invest up to Rs.10,000. The committee feels that this will help increase penetration of mutual funds and on-boarding new clients.
The committee said, “Mutual funds are subject to KYC requirements, which increase the cost of consumer acquisition, and deter adoption by first time consumers, especially when compared to purchasing gold that requires no KYC. A large number of users (20% by some estimates) find the current process very cumbersome, or simply do not have the requisite documents.”
The committee believes that this will have multiple benefits for the financial services sector and economy. This will help AMCs to develop products for low income group due to decline in the cost of acquisition of new clients. This will further strengthen the capital markets, says the report.
However, the committee has warned that there could be possibility of instances of money laundering. In addition, there could be an unhealthy shift from other financial instrument such as from ULIPs to mutual funds since the former requires KYC, the committee added.
The committee has recommended a pilot run in a controlled environment for a specified duration. To begin with, AMCs can start this experiment with 10,000 new customers across the country for six months.
One way to check illegal practices is to use digital technology to monitor transactions. R&T agents can help track such transactions by linking transaction with Aadhaar number (through a bank account). SEBI should monitor these activities on a weekly basis, the committee suggested.
Finally, the regulator should assess if the benefits have outweighed the costs.
In April 2016, RBI had set up this committee to look at various facets of household finance in India and put recommendations to enable better participation of Indian households in financial markets.
