PAN–mutual fund folio name mismatch: Here’s what you should know to avoid application rejection

An important update regarding mutual fund investments has come into effect from April 30, 2024. Not complying with this know your customer (KYC) update may lead to rejection of your application for fresh mutual fund investments.

If you want to invest in a mutual fund scheme, you first need to check the name appearing on your PAN card, as even a slight deviation from it on a mutual fund application will result in rejection.

The market regulator, SEBI, wants you to maintain consistency in spelling, order and initials of your name across official records. So, if you are investing in a mutual fund scheme for the first time, your name and date of birth must precisely match those on your PAN card, and by extension, also in your income-tax records, as per the SEBI guidelines.

These KYC guidelines will be applicable for new mutual fund investments in case of existing investors.

Earlier in March, the Central Board of Direct Taxation (CBDT) issued a directive saying that the mutual fund industry, including Asset Management Companies (AMCs) and exchange platforms, would ensure that the name and date of birth (DOB) of an investor as per PAN or IT records and the mutual fund folios are in complete alignment.

In case of a mismatch between the name and date of birth as per PAN and mutual fund folios, the Registrar and Transfer Agents (RTAs) will have the right to reject applications or transactions, including Systematic Investment Plans (SIPs) and redemptions.

What was the practice adopted until now for matching names?

Until now, your mutual fund matched your name as per your mutual fund folio (at the time of investment) with your income-tax records (as per your PAN card).

Previously, after you submitted a mutual fund (MF) application, the Registrar and Transfer Agent (RTA) of your fund house used to forward your name and date of birth to Protean (formerly NSDL database) or UTITSL, the two government-sponsored agencies responsible for issuing PAN cards.

Once that is done, the agencies would provide your fund house's RTA with details such as your name as per the tax department records, name as per PAN card, PAN validity status, PAN-Aadhaar status, and several other particulars.

Your RTA would then compare the received details with the name on your application, using fuzzy logic for matching.

For example, if you had written "S K Sharma" on your MF application and your PAN showed "Santosh Kumar Sharma" it would be considered a match, and your investment will not be approved.

Similarly, if you had written "Mohd. Kayuum" in the MF application and your name as per the Income-Tax Department was "Mohammed Kayuum" it would be considered a match. The norm here is that at least 60–70% of the name should match.

What has changed now?

After the new KYC rules come into effect, the two PAN agencies will not provide details of your name to your RTA. Instead, they will respond with a simple 'Y' or 'N' (yes or no) indicating whether your name as per your MF folio matches your income-tax records. If your name doesn’t match, your application will be rejected.

How will it impact existing folios?

Existing investors will not be affected by these changes. This is because the validation of your name (folio and income-tax records) is a one-time process. For existing investors, your mutual fund (through its RTA) would have already conducted the validation using the fuzzy logic outlined earlier. Thereafter, any investments in that same folio will not need name validation.

However, if you are investing in a new folio for the first time, then your mutual fund will conduct a name validation.