SEBI relaxes KYC norms; MF investors with ‘On-Hold’ accounts can now redeem funds

Capital markets regulator SEBI has relaxed know your customer (KYC) norms for mutual fund investors, which will allow withdrawals from folios with ‘on-hold’ status.

The Securities and Exchanges Board of India (SEBI) in a recent circular stated that it has reviewed the Master Circular dated October 12, 2023, with a view to simplifying the risk management framework.

The market regulator has done away with the requirement of PAN-Aadhaar linkage for completing KYC process.

As per the latest circular, investors will not be required to link their PAN with Aadhaar to get "KYC-registered" status. KYC Registration Agencies (KRA) can complete the Know Your Customer process by verifying other Officially Valid Documents (OVDs) such as PAN, Aadhaar, passport or driving licence.

Earlier in October 2023, the market regulator had directed mutual fund investors to link PAN with Aadhaar for the completion of the KYC process by March 31, 2024.

In the absence of non-linkage of PAN and Aadhaar, the KYC process would be put on hold. It prevented any investment activity.

The rule also led to a temporary suspension of various mutual fund accounts. According to a report, the new changes reportedly affected more than 1.3 crore accounts where KYC updates were not complete.

With the Sebi amending the Master circular of October 2023, mutual fund investors with on-hold accounts will be able to redeem funds.

Sebi has directed all the exchanges, depositories, concerned, intermediaries to complete the necessary technical change in their systems by May 31, 2024.

Sebi stated that the decision has been taken after the feedback received from the stakeholders in the securities market and also for ease of transacting by clients.

Know Your Client (KYC) is a process for various entities such as banks fund houses, and stock brokers to verify an investor's identity before starting business with them. The KYC process has been mandated to prevent fraudulent activities like money laundering.