Finance minister announcing on Friday that Aadhaar-based on-boarding of investors would be allowed.
The Supreme Court had barred the forced use of Aadhaar in September last year, except for availing select government subsidies and for pensions. Since then, fund houses had to rely on a paper-based mode of KYC, and therefore customers had to submit soft or hard copies of PAN (permanent account number) and address proof etc. before being allowed to invest.
The finance minister had indicated that the required regulatory changes would be made by the government.
As expected, the mutual fund industry has welcomed the move.
“Allowing e-KYC based on Aadhaar will definitely work in favour of first-time mutual fund investors, as a large number of individuals having Aadhaar can now invest in mutual funds after completing authentication online. They need not apply for permanent account number (PAN) and go through the time consuming offline process,” said Swarup Mohanty, chief executive officer, Mirae Asset Global Investment India.
Friday’s announcement comes as a big relief for investors and works as a large enabler for the mutual fund and distribution industries. “After the introduction of Aadhaar based KYC, the turn-around time to open and activate an investment account for the investor will be drastically reduced from four-five days to one-day. The costs associated with physical movement of the documents will also go down significantly,” says Anupam Agal, Head–Operations, Motilal Oswal Financial Services.
Mutual funds accept investments by way of cheques or online transfer from a bank account. “If the bank account is linked to Aadhaar and the individual holding the same Aadhaar is authenticating the e-KYC using an OTP, then it will be a seamless process and can be carried out online quickly. PMLA and other regulations need to undergo necessary changes to make it effective,” says Swarup.