Mutual funds: SEBI eases KYC formalities, withdraws PAN-Aadhaar link rule for now. Check latest rules

Mutual fund investors can breathe easy for now. Those who were struggling with KYC non-compliance issue on account of non-linkage of PAN-Aadhaar should note that capital market regulator, SEBI, has withdrawn the clause of link PAN with Aadhaar for ‘KYC registered’ status for mutual fund transactions. For now, investors can carry on without submitting the additional documents.

Sebi, in a circular on May 14, removed the requirement for investors to link the permanent account number (PAN) with Aadhaar to obtain the ‘KYC registered’ status for mutual fund transactions.

However, it is to be noted that for ‘KYC validated’ status, one has to get the Aadhaar linked with PAN.

In October 2023, Sebi asked all mutual fund investors to link their PAN with Aadhaar by March 31, 2024. It said that failure to link would halt the KYC process, halting investment activities. KYC could also be done using a bank passbook or account statement as address proof.

Mutual fund subscribers with ‘on-hold’ account status are not allowed to sell or buy units. NRIs were mostly impacted by the SEBI directive because they are not required to obtain Aadhaar.

The regulator requested KYC registration agencies to verify mutual fund unit-holders’ KYC using PAN, name, address, mobile number, and email IDs. The goal was to cross-check investor details with official databases like Income Tax (IT) based on PAN and Aadhaar cards. Investors using other documents faced validation issues and were asked to redo their KYC.

Sebi’s revised circular on May 14 stated that investors could use documents such as passport and driving licence to complete their KYC requirements.

“SEBI’s decision to simplify the risk management framework for validating Know Your Customer (KYC) records through KYC Registration Agencies (KRAs) is a positive step, reflecting their responsiveness to stakeholders’ feedback. It demonstrates the open approach adopted by the regulator to ensure ease of transacting for investors while ensuring that companies adhere to compliance standards. KRAs can now verify PAN, name, address, email, and mobile number from official databases. If these details are found to be in order, they will be considered validated records. It is expected to address challenges faced by many investors while also ensuring the verification of investors’ digital identities. With a growing number of investors embracing digital platforms for investment, verifying digital identities has become increasingly important,” an expert said.