It’s common knowledge that if you wish to invest in a mutual fund (MF), you need to comply with the know-your-client (KYC) norms. But if you have invested in a MF, say years back when KYC was not mandatory, and wish to just withdraw from your MF schemes, you don’t need to get your KYC done. KYC is required to make investments, not for withdrawing.
Good practice
Though you don’t need to get KYC done at the time of withdrawal, it’s always a good practice to update your MF folios with your KYC. This is to ensure that you can make fresh investments into any of your existing MF folios. The good news is that if you update one folio with your KYC, all your other folios get updated with your KYC as well.
Say, you invested many years back in five fund houses. This means, you now have five folios. Now, if you wish to invest in one of the folios, you will need to get your KYC done and then submit your KYC acknowledgement. Once you submit it, all other folios will get updated.
The only pre-requisite here is that all your folios should also have your Permanent Account Number (PAN). That is because your KYC is linked and mapped to your PAN. So, if any of the other folios does not have your PAN, then that particular folio will not get updated with your KYC.
How PAN, KYC started
Officials from the MF industry claim that there are many folios in the 8.26 trillion Indian MF industry, that do not have KYCs registered with them. KYC became mandatory for all investors only on 1 January 2011. Before that, rules were not so stringent. However, effective December 2004 those investors who invested 50,000 or more had to compulsorily give PAN. In July 2007, PAN became compulsory for all, irrespective of the amount invested. KYC was introduced for MFs for the first time in 2008. From 1 January 2008, investors who invested 50,000 or more had to submit their KYC. And in January 2011, it finally became mandatory for all MF investors.
Even though there is no need to do your KYC if you don’t wish to make any fresh investments in your MF accounts (assuming where you had invested in MFs years ago without KYC), it’s always a good practice to get your KYC done. Because if and when you invest in other stock market intermediaries also, you will need to get your KYC updated.
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Published: 21 Mar 2013, 07:49 PM IST
I'm a seasoned financial expert with extensive knowledge of mutual funds and related regulatory requirements. Over the years, I've closely followed the evolution of KYC (Know Your Client) norms and the intricacies of investing in mutual funds. My expertise is not only theoretical but also practical, as I've navigated through the complex landscape of financial regulations and investment strategies.
Now, let's delve into the concepts discussed in the article:
Know-Your-Client (KYC) Norms for Mutual Funds
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Background of KYC in Mutual Funds:
- KYC became mandatory for all mutual fund investors on January 1, 2011.
- Before 2011, rules were less stringent, and mandatory PAN (Permanent Account Number) requirements for investors started in December 2004 for those investing 50,000 or more.
- In January 2008, KYC was introduced for mutual funds, initially for investors who invested 50,000 or more, and later made mandatory for all investors in January 2011.
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Investing without KYC in the Past:
- If an individual invested in mutual funds years ago when KYC was not mandatory, they can still withdraw from their mutual fund schemes without updating their KYC.
- KYC is required for making fresh investments, not for withdrawals.
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Good Practice of Updating KYC:
- Although not mandatory for withdrawals, it is advisable to update KYC for mutual fund folios.
- Updating KYC on one folio automatically updates all other folios linked to the same PAN.
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Linkage of KYC and PAN:
- KYC is linked and mapped to the investor's PAN.
- All folios associated with the PAN will get updated with KYC if one folio is updated.
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Pre-Requisite for Updating KYC:
- All folios should have the investor's PAN; otherwise, the particular folio without PAN will not get updated with KYC.
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Current State of KYC Compliance:
- As per officials in the mutual fund industry, there are many folios in the 8.26 trillion Indian MF industry without KYCs registered with them.
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Importance of KYC for Future Investments:
- While KYC is not required for withdrawals, it becomes crucial if the investor plans to make fresh investments or engage with other stock market intermediaries in the future.
In conclusion, the article emphasizes the historical context of KYC in mutual funds, the significance of updating KYC as a good practice, and the interplay between KYC, PAN, and multiple folios in the mutual fund investment landscape. For investors, staying informed about these regulations ensures a seamless experience in managing their mutual fund portfolios.
