Stocks

Mutual fund investments trip on KYC compliance norms

Sneha Padiyath Mumbai | Updated on January 25, 2011 Published on January 25, 2011

Online and offline investment businesses of asset management companies have been adversely affected in the short run owing to the non-compliance of KYC (Know Your Customer) norms by mutual fund investors.

Though analysts couldn't substantiate their claims with precise numbers, they said the number of transactions has come down a lot.

The Association of Mutual Funds in India (AMFI) had put up a notice on its Web site informing investors that they have to be KYC compliant from January 1, irrespective of their investments in schemes.

All the KYC documents have to go to CDSL Ventures Ltd system, where the application is processed and confirmed. With KYC being made compulsory across all investor categories, the verification of documents is getting delayed. The huge influx of KYC documents into the CDSL Ventures system has slowed down the process, thereby causing the delay.

“Generally, the time taken to process and confirm a KYC form is anywhere between 10 and 15 minutes. But due to the systemic jam, it takes 30-45 minutes to process a document,” said Mr Rajesh Krishnamoorthy, Managing Director, iFast Financial and Fundsupermart.com.

But why didn't AMCs (Asset Management Companies) complete the KYC compliance procedures beforehand, thereby facilitating a smoother KYC confirmation process?

“AMCs have nothing to do with it. The overload in the system is not because of delay, but because of an increase in the number of KYC applications forms received, as everyone has to be KYC compliant now. Therefore, the system is receiving more applications than before. But eventually it will get used to the load,” said Mr Waqar Naqvi, CEO, Taurus Mutual Fund.

Another hurdle in the KYC compliance process is the lack of communication from the distributors' side. “Investors are clueless as to why, how and where the process should be completed. With distributors left with little incentive to push mutual fund products, they remain inaccessible to the investors,” said Mr Rakesh Goyal, Senior Vice-President, Bonanza Portfolio Ltd. “AMCs cannot do much as they do not have the pan-India infrastructure to handle a process of this magnitude. They have to depend on distributors for this.

“Also, the market conditions are not conducive for fresh investments. Add to this the fact that the mutual fund industry is still in its nascent stages. All of this has a multiplier effect on inflows into the industry.”

However, fund house officials and fund analysts said that this will not have any long-term influence on the industry. They expect the issue to be resolved in three to four weeks.

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Published on January 25, 2011
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