Radhika Binani is chief product officer, Paisabazaar.com
The Securities Exchange Board of India (SEBI) has been consistently trying to ease the process of investing in capital markets, including mutual funds. Using digitisation, it has been striving to increase the penetration of mutual funds by simplifying the onboarding process. eKYC is one of the key steps in this direction. Now, new retail investors can complete the entire KYC process from the comfort of their home or office without worrying about uploading documents or sending them through post. All that one is required to do is to enter their Aadhaar Number, PAN number and mobile number to start investing.
In this article, we tell about eKYC and what it entails for you, the investor. But first, let’s understand how the KYC process evolved over time.
Evolution of KYC process
KYC is the process of verifying the identity of a customer through reliable documents. These documents include PAN Card (for identification and tax purposes), address proof and cheque for making payments. Prior to 2011, you had to fill up KYC registration form and submit supporting documents each time you approached an intermediary or any capital market segment. Let’s say, you invested in ICICI Prudential Mutual Fund and completed their KYC process. Sometime later you decided to invest in another fund house, say UTI. This would entail undergoing the KYC process again.
To do away with the repetitive submission of documents, SEBI introduced the concept of common KYC in 2011. Under this concept, your first intermediary will process the KYC-related details and upload them with KYC Registration Agency (KRA). Once your account is opened, any other intermediary can use the same details for future account opening.
Although the introduction of common KYC eased things for retail investors, it continued to be a time-consuming process (8–10 days) and still involved the hassle of in-person verification. This also increased the cost of servicing small investors while preventing immediate on-boarding of new customers.
To make the process more investor-friendly, SEBI introduced eKYC that allows customers to verify their identity and submit documents digitally. To get started, you only need to quote your Aadhaar number, PAN number, e-mail id and mobile number. Once you type in the details, you will receive a one-time password (OTP) in your Aadhaar-registered mobile number. After entering the OTP, the eKYC process will be complete and you can start investing in mutual funds within minutes.
Restrictions of eKYC
While eKYC is a great step forward towards simplifying the investment process, it still has certain limitations.
Cap on investment amount: Currently, you can invest only Rs.50,000 per fund house per year. To increase this limit, you will have to get in-person verification done or complete biometric-based authentication. The latter involves scanning of your thumb impression and can be done at select centers of KRAs or investor service centers of mutual fund houses.
Not entirely paperless: You have to upload a cancelled cheque while filling up your bank details, making eKYC fall short of being an entirely paperless process. However, technological improvements may also do away with this impediment in future.
Difficulty in making offline transactions: As eKYC is done online without any submission of documents, mutual fund houses or Registrar & Transfer Agents (RTAs) may not have your signature in their records. Hence, you may have to visit RTA or mutual fund house in person to verify your signature in order to do transactions through the offline mode and avail other non-financial services.
To sum it up, SEBI’s Aadhaar-based eKYC norms have definitely made investing more convenient for net-savvy retail investors. In the current situation, where top 15 cities account for about 76 per cent of the total MF assets held by individual investors, eKYC norms will help fund houses and online distributors to accelerate mutual fund penetration among lower income groups and in Tier 2 and 3 cities. Moreover, even a fresh investor from a higher income group can use eKYC to instantly invest in mutual funds and can later opt for an in-person or biometric verification for investing beyond Rs 50,000 per year limit.