Aadhar-PAN linkage no longer mandatory for MF investors to get KYC-registered status

16 May 2024 , 04:04 PM

SEBI has removed the Aadhar – Pan linkage requirement for MF investors to get KYC-registered status.

The Securities and Exchange Board of India (SEBI) has taken a significant step towards simplifying the “Know Your Customer (KYC)” norms for investors, removing the compulsory linkage of Aadhaar and permanent account number (PAN) for mutual fund investors.

A recent circular issued on May 14 by SEBI has an announcement of the relaxation of changes previously introduced on October 12 regarding the KYC process. The decision has come after SEBI’s feedback from stakeholders in the securities market, with the aim of efficient client transactions and simplifying the risk management framework.

The key highlights of the circular included the recognition of KYC details sourced from official databases such as the Income Tax Department records on PAN, Aadhaar, and Digilocker as “validated records” by KYC registration agencies (KRAs). Additionally, KRAs are mandated to verify KYC records, encompassing PAN, name, and address, within a stringent two-day timeframe upon receipt.

These regulatory adjustments have been strategically crafted to safeguard investor interests in securities and to foster a beneficial environment for the growth of the securities market, aligning with SEBI’s overarching objectives. Intermediaries operating within this ecosystem are tasked with implementing these changes effective May 31, 2024, onwards.

Understanding the Significance of KYC-Validated Status

For investors, KYC-validated status holds notable implications. If an investor’s KYC process has been duly completed based on Aadhaar, on the basis of linkage of their mobile number and email ID to the Aadhaar number, their KYC status will be deemed valid by a registration agency. However, if the KYC process is conducted using a valid identity document other than Aadhaar, it is categorized as KYC-registered but not KYC-validated.

Investors with KYC-validated status enjoy the flexibility of transacting through any fund house, thereby unlocking a broader investment opportunities. On the other hand, investors categorized under KYC-registered status are limited to transacting only through fund houses where they currently hold investments, thereby limiting their flexibility within the mutual fund landscape.

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