Aadhaar based KYC for effortless Mutual Funds deals
September of last year, the Supreme Court (SC) has disallowed Aadhaar as an authentication for KYC.
September of last year, the Supreme Court (SC) has disallowed Aadhaar as an authentication for KYC. Prior to that, the Know Your Customer (KYC) process was rapidly quickened and lead times reduced to mere minutes through the use of technology and Aadhaar validation.
This helped prospective investors to enroll formally with the regulators and begin investing in Mutual Funds (MF). But the court ruling of privacy issues and the restriction of Aadhaar for usage of KYC verification has hit the process back to the physical form submission.
The new Aadhaar law passed in July this year and the subsequent announcement by the Finance Minister last month, Aadhaar is back in vogue for establishing KYC.
Aadhaar based KYC helps in making the on-boarding of the new investor almost instant and seamless. This helps the penetration of MF into larger public and usage of technology to scale up the operations of the intermediaries like advisors, distributors, etc.
The earlier process was not just pretty slow but also cumbersome by collecting physical documents, verification by the permitted channel member, submitting with the appropriate authority and then wait for the approval.
This used to take days, though the first investment cheque was collected there were many times when the KYC was pending, and the subsequent transactions were put on hold. This was especially with the case of registering for Systematic Investment Plan (SIP).
Most of the times, the investor was unaware of KYC issue till the SIP date hit in the subsequent month and by then it was too late.
There would be a rejection or not processing of the investment as planned and it would create a bad experience for the investor. These are some put offs for reluctant investors who're trying the MF for the first time and this process added further negativity.
This is particularly true with the newer generation of investors who give prime importance to convenience and the Aadhaar-based authentication is a right connect for them.
This is the generation who would just login to a website or download an app to make a purchase, shop, book tickets, etc. The tech-savvy generation would jeer at the thought of physical identity verification and the usage of signatures, etc., as hurdles than security.
They're comfortable with the e-verification and their comfort of using technology only added woes to the earlier KYC process.
With the advent of technology and it's adoption by large number of eager investors, it's time for the regulatory authorities to raise the bar. On pretext of multiple check points, the earlier process turned burdensome and slower.
Moreover, even now despite the Aadhaar-based KYC, this step is still a duplication of efforts. As almost all of the MF investments are now happening through the bank, the regulation could further ease the process by allowing a KYC complaint bank account to be approved for MF investments.
For now, the investment KYC is different from that of the bank account because the investment KYC along with personal details deals with FATCA (Foreign Account Tax Complaint Act) and CRS (Common Reporting Standard) of global tax compliance, though seems a duplication needs to be conducted.
Also, many investors get irritated when mentioned about the KYC non-complaint as they feel they've got a legitimate bank account where the KYC is already done.
The investment KYC is more to do with these global compliances and Anti-Money Laundering (AML) guidelines stipulated by the local and global watchdogs The new rule of allowing Aadhaar-based KYC would allow the intermediaries, Asset Management Companies, etc., to enroll the new investors and also validate the older investors to the new investing norms quickly so as to allow them to invest and transact MFs effortlessly.
The Finance Minister has announced this in her first weekly measures boosting the measures and ever since the weekly boosters have been effective in bolstering the confidence.
The latest done last week to reduce the corporate tax to the Indian entities and also a slew of measures for attracting investments and expansion have added fuel to the markets. The timing of this new rule has come at the most appropriate time for the eager investors to take a plunge into investing world.
(The author is a co-founder of "Wealocity", a wealth management firm and could be reached at [email protected])