The market regulator SEBI has proposed a major change in the process of opening mutual fund accounts.
Under the new rule, a new mutual fund account can be opened only after the investor’s KYC (Know Your Customer) verification is fully completed.
At present, many mutual fund accounts are opened even when the KYC documents are incomplete.
According to SEBI’s new proposal, an investor’s account will be considered fully active only after the KYC agency gives final approval of their identity.
Only after this approval will investors be allowed to make their first investment. To ensure transparency
and avoid delays, investors will receive updates about every stage of the KYC process through their registered mobile number and email.
SEBI has also instructed mutual fund companies and central KYC agencies to update their systems as per the new rules.
The regulator has invited public feedback on this proposal until November 14.
Current Situation and Investor Problems
Currently, KYC is mandatory for opening a mutual fund account. However, in many cases, accounts are opened before KYC verification is completed.
This causes several problems for both investors and the asset management companies (AMCs) that manage mutual fund schemes.
Investors often face issues such as being unable to make transactions, redeem investments, or receive dividends due to incomplete or incorrect KYC details.
Similarly, AMCs face difficulties in sharing scheme information or accepting deposits from such accounts.
The New KYC Verification Process
Under the new system, investors will need to submit all required documents to the mutual fund company when opening a new account.
The mutual fund company will forward these documents to the KYC Registration Agency (KRA) for final verification.
Once verified, the KRA will mark the account as “KYC Verified.”
Only then will the investor be allowed to make the first investment.
Investors will receive notifications about every stage of the KYC process through their registered mobile and email.
Other Investor-Friendly Reforms
Full Disclosure to Investors
Mutual fund companies must now provide clear and complete information to investors.
This includes details about the scheme’s risks, fees, performance, and investment strategy before they invest.
Mandatory Investment of NFO Funds
Mutual fund companies will have to invest the money raised through a New Fund Offer (NFO) within 30 days.
If they fail to do so, investors can withdraw their money without paying any exit load (withdrawal fee).
Earlier Risk Information
Earlier, investors received risk-level information about their mutual fund schemes at the end of every month.
Now, this information must be made available by the 15th of every month, allowing investors to make more informed decisions.
