SEBI plans to standardise MF folio opening process, invites comments: Key takeaways

Capital market regulator SEBI on Thursday launched a consultation paper proposing a host of changes in the process of opening mutual fund (MF) portfolios. One of the key proposals allows the first investment into the portfolio only after it is fully KYC-compliant. The market watchdog's consultation paper is aimed at standardising the practice of first transactions in newly-created mutual fund portfolios to mitigate certain challenges flagged by investors and fund houses.

It has outlined a detailed procedure for opening new MF folios in a draft circular.

SEBI floats consultation paper on opening mutual fund folios: A summary of key changes

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• According to the proposed changes, asset management companies (AMCs) will send the KYC (know your customer) documents to the KYC registration agencies (KRAs) after creating the portfolios. KRAs will then mark the folio as compliant only after completing the full KYC verification.
• As per the proposed changes, investors will receive updates at every KYC step through email and mobile.

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• KRAs are SEBI-registered bodies that act as central repositories for storing, validating and sharing KYC data across intermediaries -- such as brokers, mutual funds and fund managers.
• It is also proposed that AMCs and KRAs will follow SEBI's master circular on KYC compliance, in order to enhance investor protection and transparency. AMCs and KRAs will be required to implement the circular once it takes effect.

What is the matter? Why these changes?

Currently, the domestic mutual fund industry follows a verification process as per SEBI rules that require new folios to be opened only after the completion of mandatory KYC verification.

However, the sequential nature of this process has led to some instances of non-KYC-compliant folios.

SEBI seeks to address these issues through the proposed changes in the folio creating process.

SEBI invites public comments

The regulator has invited public comments on the proposals until November 14.