You are no longer required to link Aadhaar details of your clients with their mutual fund folios. The apex court on Wednesday has ruled that financial institutions such as banks, mutual funds and insurance companies can not make Aadhaar mandatory for investing in mutual funds or buying insurance policies.
However, a key question that the Supreme Court’s verdict has raised is that will the mutual fund industry be able to continue to carry out Aadhaar based eKYC. While some industry officials believe that fund houses cannot do eKYC, a few officials say that they are awaiting clarity if they can do Aadhaar based eKYC.
Currently, investors can invest up to Rs.50,000 per financial year per mutual fund, using OTP based eKYC. However, investors who wish to invest more than this limit need to undergo IPV or biometric based authentication at point of service of CAMS and AMCs. ARN holders are allowed to do IPV alone. The main objective of eKYC is to reduce turnaround time and paper work.
We spoke to a few officials to understand the impact of this move on the industry.
Anuj Kumar, President and CEO CAMS said that it is too early to comment on this as they are seeking clarity on this issue from the regulator, AMFI and AMCs. He said, “We are not sure how things are going to pan out. However, we will explore if we can use virtual identification (VID) number to do eKYC.” The VID is a temporary 16-digit random number mapped with the Aadhaar number for authentication.
Ravikumar Somasi, General Manager, Karvy Computershare believes that the industry cannot carry out Aadhaar based eKYC. “The apex court has clarified that private companies offering investment in mutual funds and insurance policies cannot use Aadhaar authentication for commercial purposes. However, I believe that clarification note always follows such a landmark judgment and we need to see how the clarity unfolds in mutual funds and other such industries like banking and insurance, as the entire BFSI space leverages Aadhaar based client on boarding in some or other way.”
Jimmy Patel, CEO, Quantum Mutual Fund feels that the industry should wait for RBI circular on eKYC. “Since banks also do eKYC to onboard new customers, we can refer to RBI circular to understand the way forward.” He, however, feels that the cost of acquisition to onboard a new customer will go up in the absence of Aadhaar based eKYC.
Expecting that the industry to continue to do Aadhaar based eKYC, Srikanth Meenakshi, Founder and COO, FundsIndia.com said, “I don’t think the industry would stop eKYC as of now. Till there is clarity on this or the industry comes out with an alternative to Aadhaar based eKYC to onboard a new clients, I expect the industry to continue Aadhaar based eKYC.”
A few experts to whom Cafemutual spoke to believe that the move would affect new age distributors who rely on Aadhaar based eKYC.
A senior fund official requesting anonymity said that new age distributors would be affected of this move as they completely rely on Aadhaar based eKYC to onboard a new client.
Somasi also believes that new client on-boarding by intermediaries will get impacted in the absence of Aadhaar based e-KYC, be it OTP or biometric based.
Mohit Gang of MoneyFront also believes that distributors having dependency on Aadhaar based eKYC will face a challenge. “In my view, the industry has gone a step back. With this move, the industry will again move to physical KYC era, which typically takes 5 to 7 days. In B30 locations, this could take even more days.”
However, a few new age distributors say that they would not be affected by this move. Mukesh Kalra, Founder and CEO, ETMoney said, “There was uncertainty around constitutional validity of Aadhaar. Also, there is a limitation of Rs.50,000 per mutual fund per year on Aadhaar based eKYC. Currently, for a distributor like me, there is no mechanism to check if the client has already exhausted such a limit. Hence, from the beginning, we decided to carry out biometric KYC through IPV.”
On the impact of the court’s verdict on the mutual fund industry, Kalra said that while the cost of acquisition and turn around time would go up substantially, the mutual fund industry might witness temporary halt on the growth on new folio addition.
Seconding Kalra, Faisal H Rahman, Product Head, Mutual Fund, Coin (a mutual fund distribution arm of discount broker Zerodha) said, “We had anticipated it and started doing IPV based KYC in May 2018, as Aadhaar authentication has been in the news for quite some time and there have been frequent changes in Aadhaar based eKYC norms.”
