Sebi proposes uniform process for mutual fund folio creation and first investment

Mumbai: The Securities and Exchange Board of India (Sebi) has proposed a uniform process for opening mutual fund folios and executing the first investment.

Investors would be able to commence their investments once the KYC (know your client) verification is completed by the KRA (KYC registration agency) and the folio is marked as compliant, Sebi said in a discussion paper on Thursday.

Under current rules, new folios can be opened only after completion of mandatory KYC verification.


However, Sebi observed certain instances of KYC non-compliant folios have arisen due to the sequential nature of the verification process followed in the mutual fund industry.

At the time of folio creation, asset management companies conduct comprehensive internal KYC checks. Subsequently, they process the investment while simultaneously forwarding the investor's documents to the KRA for final verification.

In some cases, where the KRA identifies discrepancies during its review, the folio is marked as KYC non-compliant until such deficiencies are rectified and the investor's KYC status is updated to compliant in the KRA system.

The regulator said at the time of new investment under a new folio of a different scheme, the investor is unable to execute any transaction until the KYC status of the investor is marked as compliant in the KRA system. Further, investors are unable to receive redemption proceeds and dividends into the bank accounts where the bank account details are incorrect.

Likewise, asset management companies are unable to deliver physical communication to the unit holders informing vital development in the scheme. Besides, fund houses are also unable to credit the redemption proceeds and dividend into the bank accounts where the bank details are incorrect, resulting in increase in unclaimed redemptions and dividend, Sebi said.