Efficient and seamless Know Your Customer (KYC) processes are crucial for both investors and distributors. However, mutual fund distributors – and some investors – face mounting challenges dealing with NSDL Database Management Ltd (NDML) and DotEx in the wake of a recent directive by the market regulator for investors to update their KYC status with KYC registration agencies (KRAs).
“One of the major issues is the lack of digital infrastructure for KYC validation with NDML and DotEx. Unlike other KRAs, these agencies do not offer online options to validate KYCs, which poses significant difficulties for investors,” said Amol Joshi, founder of PlanRupee Investment Services, a mutual fund distributor. “However no KRAs provide online facility for modifications in name of address.”
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NDML, a subsidiary of the National Securities Depository Ltd, and DotEx, a wholly owned unit of the National Stock Exchange of India Ltd, are two of the five key KRAs in India, alongside CDSL Ventures Ltd (CVL), Computer Age Management Services Ltd (CAMS), and Karvy.
The regulator said mutual fund investors must verify their phone number and email with the KRAs and update their KYC using Aadhaar cards as the proof document and get a ‘validated’ status.
However, according to mutual fund distributors, KRAs are not adequately prepared to implement the directive by the Securities and Exchange Board of India and this has led to significant disruptions and delays.
“Earlier, the usual turnaround time used to be 3-7 days. Now, we have been seeing cases where updating your KYC can involve more time,” said Joshi. He added that the delay is due to the multiple layers of updating required.
NDML and DotEx did not respond to Mint‘s queries on the subject.
What is validated KYC?
A validated KYC status is like a golden ticket. It signifies that the KYC documents you submitted, such as PAN and Aadhaar, have been successfully verified by the issuing authorities and you can invest in any mutual fund company hassle-free.
A registered/verified status indicates that your documents were accepted, but for some reason, independent verification from the issuing authority couldn’t be completed. This might be because you used documents other than Aadhaar. While you can still manage your existing holdings in these companies, you’ll likely need to redo your KYC using PAN or Aadhaar if you want to invest in a new mutual fund company.
If your KYC status shows “on hold” or “rejected,” it means there’s a serious issue with your documents or the verification process. This restricts you from investing in new mutual funds or even making transactions within your existing holdings. “On hold” status typically shows up in case of missing or unclear details, while a rejected KYC indicates that the documents provided are invalid.
Many distributors have reported that physical KYC applications submitted to NDML and DotEx are more likely to be rejected.
“The rejection rate for physical applications is alarmingly high. This adds unnecessary stress and delays for both us and our clients,” said a Bengaluru-based mutual fund distributor who did not want to be identified.
Limited options
Investors who have their KYCs registered with one KRA cannot transfer their KYC to another KRA. They don’t have any option but to wait till their issues are resolved. This becomes more problematic if you have your KYC registered with NDML or DotEx because of the delays and inefficiencies in their processes.
“Investors should have the flexibility to choose or transfer their KRA to avoid such delays,” Joshi suggested.
The mutual fund distributor based in Bengaluru mailed Sebi to highlight the challenges that investors faced with NDML and DotEx. The Association of Mutual Funds of India (AMFI) advised the distributor to strictly avoid contacting the market regulator and to instead reach out to the relationship managers of asset management companies and registrar and transfer agents (RTA).
However, AMC employees faced difficulties coordinating with NDML and DotEx.
“We feel stuck in a loop. We email the AMC relationship managers, but they do not have quality access to these KRAs and can’t resolve the issues promptly. It’s frustrating,” the Bengaluru-based distributor said. “Forget picking calls, DotEx takes days to even respond to emails. This results in delays in the entire investment process.”