Complicated KYC norms are deterring first time investors to invest in mutual funds, say distributors.
Mutual funds distributors are seeking uniform and standardized Know Your Customer (KYC) norms as the existing norms have been creating complications and inconveniencies for them as well as investors. At present, a separate KYC is needed for different financial products. For instance, a separate KYC needs to be done for bank accounts and mutual funds.
Distributors feel that the existing complications in KYC norms are, to some extent, proving to be deterrent for new investors to invest in mutual funds. This has affected the MF industry, feel the distributors. So while distributors agree that the KYC is important for the country, they feel the KYC process should be made smoother and easier.
The recent announcement of Finance Minister P Chidambaram to consider bank KYC as good enough for insurance products, has raised expectations among MF distributors too. They are hoping that this facility would be extended to MF industry also.
Vinayak Sapre of VVS Ventures said that some of his clients who are first time investors are reluctant to invest in mutual funds due to complicated KYC norms. He said that the a single KYC for all the financial transaction would boost investments in MF industry.
Melvin Joseph of Finvin Financial Planners shared his personal experience in getting his KYC done when he came to Mumbai from Chennai. At that time, he had neither any permanent address nor a rent agreement. He said that nearly 90 percent of migrants face such problems.
Gajendra Kothari, Etica Wealth Management also said that the co-ordination between five KYC Registration Agencies (KRAs) is important to check the existing ambiguity in KYC norms. He said that the unification of KRAs and single KYC for all financial transaction would bolster the MF industry.
SEBI also decided to exempt the requirement of permanent account number (PAN) for investments (both lump sum and SIPs) up to Rs 50,000 per mutual fund, per year. Now, instead of PAN, investors can submit their voter identity card, passport or driving license for photo identification.
Complications in existing KYC norms
· Separate KYC approvals for all financial transactions.
· Non uniformity and lack of coordination between the five KRAs; records of KRAs are not seamlessly updated with the result that the KYC may be shown as pending with one or more KRAs even if it has been done
· A few banks do not accept Aadhaar and Ration Card for address proof.
· Migrants face numerous problems due to excessive documentation requirements.
Measures suggested by distributors
· Single KYC approval for all financial products.
· Connectivity between KRAs.
· Uniform and convergent norms.
There have been several changes in KYC norms in the recent past. Effective January 01, 2012,individual investors who have done KYC before January 01, 2012, are required to provide additional mandatory information like father’s/spouse name, marital status, nationality, gross annual income or net worth and in-person verification (IPV) if they wish to invest in a new mutual fund (new AMC).
The new KYC requirements for non-individual investors are more stringent as compared to individual investors. For instance, corporates need to provide a copy of the balance sheets for the last two financial years, copy of latest share holding pattern, copies of the memorandum and articles of association and certificate of incorporation, among other things. As a result, many IFAs had to redo the KYC of their institutional investors again.
Distributors are also required to perform in-person verification (IPV) of their clients.
Recently SEBI chief U K Sinha has been talking of unifying KYC norms across all financial regulators.
