KRACentral: It’s Time to Shine

In August 2019, the Association of Mutual Funds in India (Amfi) and Boston Consulting Group (BCG) published a report titled “Unlocking the ₹100 Trillion Opportunity.” At that time, the mutual fund (MF) industry had assets under management (AUM) of ₹25 trillion. Fast forward to March 2024, the industry’s AUM has more than doubled to ₹55 trillion, attracting millions of new investors. This growth was facilitated by a robust regulatory framework that prioritizes investor protection.

The mutual funds industry has undergone several regulatory changes over the years, including updates in scheme categorization, segregated portfolios norms, risk-o-meter, and KYC requirements. However, a recent change regarding KYC compliance has created challenges for investors. The new KYC rule mandates investors to be KYC-compliant by submitting official valid documents (OVD) for proof of identity and address. Failure to comply leads to restrictions on fresh investments, SIPs, and redemptions, leaving investors temporarily unable to access their funds.

Amidst these challenges, investors have reported difficulties in modifying their KYC status online, citing issues like database errors, illegible Aadhaar for online verification, and mismatches in name format. This has raised concerns about the readiness of the KYC infrastructure to handle the evolving requirements. Additionally, NRIs face additional hurdles in complying with the new KYC norms, as they are required to physically update their KYC, impacting their access to investment opportunities.

To address these issues, stakeholders are calling for reinstating KYC statuses to pre-change levels for on-hold and rejected cases and implementing new KYC rules once KRAs are equipped with a common online solution. Furthermore, the industry should prioritize system preparedness before introducing major changes to ensure a seamless transition for investors.

In conclusion, the challenges surrounding KYC compliance in the mutual fund industry highlight the need for a more efficient and user-friendly system to safeguard investors’ interests and ensure a level playing field for all participants. By streamlining the KYC process and enhancing online solutions, the industry can better serve its growing investor base and uphold regulatory standards effectively.