MF investments to follow KYC rules

As part of its drive to stem the flow of black money into the capital market, the government is looking to further tighten Know-Your-Client (KYC) norms for mutual fund investments.

According to officials in the mutual fund industry, the finance ministry has suggested that all investments in mutual funds should be subject to KYC norms. This was discussed at a recent meeting between the ministry of finance and financial market participants. Currently, KYC norms are applicable only for investments of Rs 50,000 and above.

KYC norms require investors to register details such as PAN Card, address proof, income and contact details with CVL, a wholly-owned arm of CDSL Ventures. They will be given a KYC acknowledgement slip, which has to be submitted for investment and redemption requests.

In January last year, it was made mandatory for investors to quote their PAN for MF investments. The next month, the government relaxed the KYC requirements, making it compulsory only for investments worth Rs 50,000 and above.

The threshold was kept high due to industry concerns that stringent norms would create an entry barrier for weaker sections of the society, who many mutual funds were trying to woo through micro-pension plans. Even now, some industry watchers said the KYC norms should be applicable only for investments of Rs 10,000 and above.

���Customer details are important, but from an operational point of view, the move could further hit inflows into equity schemes of mutual funds,��� says Bajaj Capital MD Rajiv Bajaj. But some of the large fund houses are comfortable with the idea of stricter scrutiny.

���KYC should be done across all levels. Whenever such initiatives are introduced, there will be initial hiccups, and growth could slow temporarily. But in the long term, it works out well,��� says Reliance MF CEO Sundeep Sikka.