KYC Woes Of Investors: Current Status And How To Validate KYC Using Aadhar?

Many mutual fund investors are troubled by the recent change mandated by the Securities and Exchanges Board of India (Sebi), which effectively made Aadhaar the only Officially Verified Document (OVD) for KYC verification. The problem arises when the status shows as ‘KYC REGISTERED', and investors then are unable to invest in a new fund house. They are required to validate the KYC, by re-doing the KYC process with Aadhaar and hope for a 'KYC Validated' status to invest in a new fund. On April 16, 2024, an account named Vineet Hetamasaria (an investor) on the X platform wrote, “KYC updation given through (A Mutual Fund House) is pending since 2nd April with NSE KRA (Dotex)... No progress and my discussion with various AMC suggest that this is a regular problem with NSE KRA and often there is no response.”

Many investors have tagged brokerage houses with the same complaints. However, brokerage houses and Sebi intermediaries reply expressing helplessness as KYC validation falls under the purview of KRAs. One of the top brokerage houses responded to several investors, saying, “We’re sorry to hear this. We're dependent on the KYC Registration Agency (KRA) for the latest KYC status. Once we received the updated status from the KRA, we immediately notified about this to you.”

How do Things work?

To make things clearer, in India, there are five KYC Registration Agencies (KRAs)- CAMS KRA, CVL KRA, Karvy KRA, NSDL KRA, and NSE KRA. Brokerage houses, mutual fund distributors, or Sebi RIAs are market intermediaries that register with these KRAs. They accept clients and submit the KYCs to KRA for processing. Another way is investors can directly submit KYC at KRAs physically or online. Anyways it is ultimately any one of the KRA who has to declare if an investor is KYC compliant. 

Sudheer M, a Sebi RIA, said, “The problem started on April 1. They started using Aadhaar as OVD from then. Any other identity cards, if given as OVD, will render your KYC status in ‘KYC registered’ status. With that status, you can continue investing in existing mutual funds, if you have non-Aadhaar identity documents as OVD. However, if you have to invest in a new mutual fund, the new mutual fund house will ask you to validate your KYC. Most individuals didn’t have Aadhar as their primary OVD, so a large scale overhaul is going on, and many people have successfully changed their OVD to Aadhar and became KYC validated.”

But due to multiple contrary guidelines from the top, the situation is more complex. Mahesh Mirpuri a mutual fund distributor further highlighted a confusion, “ Many people I know have given bank statements as address proof and PAN as identity proof. All of these now come under KYC registered status. Through official communication, it was said that from April 1, those who have submitted proof of identity (POI) or proof of address (POA) such as Aadhaar, passport, driving licence, voter ID card, NREGA job card etc will not have any problems with KYC and those who have submitted bank statements will only have problems and they have to do Re-Kyc.”

“People like me who used bank passbooks instead of official six valid proofs were meant to be affected but we could continue investing in old folios and there was no talk of “validation or KYC validated”."

But Mahesh on April 1, 2024 was informed by KRAs of a new "KYC validated" status and that in spite one having given any of these six valid OVDs, it will come under ‘KYC registered’ if it is not validated using Aadhar.

"To get validated you have to submit Aadhar, so effectively those who have given bank passbooks or those who have given any the five other mentioned officially accepted OVDs will come under the same category ‘KYC registered’, ”Mirpuri clarified. Simply put you will only get validated with Aadhar.

Both Mirpuri and Sudheer say that numerous investors have successfully validated using Aadhar as per new guidelines and for most of them, the process was seamless and easy. However many face problems.

Problem When Trying To Validate Using Aadhar

Sudheer said, “When trying to change their KYC status to validated it is South Indians who encounter the most problems because many have different names on Aadhar and PAN card. “

A person from Kerala’s Kozhikode said, “My wife’s name is Shreya V l (name changed for privacy) on her Aadhar card and Shreya Valayil on her Pan card. She could not put just initials on Pan card as per rule so has her entire name. When I tried to validate KYC online, it showed an Aadhar-Pan mismatch. She can now go to any Aadhar enrollment centre to change the name on her Aadhar card, but then it would have a mismatch with her other certificates like her driving license or High school certificate which may create problems in future.”

“For people who are having trouble due to different names in Aadhaar and another document you can physically visit any fund houses or KRAs.” Also, Sudheer has a suggestion, “When PAN-Aadhar linking is done through the income tax portal it asks ‘Name as per Aadhar’ and ‘Name as per PAN.’ Similarly, if two columns are provided when trying to do KYC validation much confusion can be removed.”

“NRIs are other section who are having problems because most of their Aadhar are connected to phone numbers in India and OTPs come on those numbers,” says Sudheer.

Mirpuri highlighted some troubles investors face when they try to validate at physically at KRAs. “A family member of mine tried to validate KYC physically at KRA but the QR code on Aadhaar was not getting scanned. To get it validated we had to do it online. In most cases, online validation is getting done successfully. But how many old people will be able to do it online? Most of the young investors are not affected,” he said.

“Another problem is if you have changed your e-mail ID or contact number your KYC status ends up on ‘KYC On hold’ status. If you have done your KYC using a mobile number and then you changed your number, their message won’t reach you. your KYC status ends up with ‘KYC On Hold’ status. But mutual fund distributors including me have ensured that our clients’ KYC status is not on hold. Most of them are validated and only a few are in ‘KYC Registered’ status which we will hopefully validate soon,” he added.

If your mutual fund KYC status is on hold, your account will be frozen. This means you wouldn’t be able to buy or sell units, switch between funds within the same fund house, or redeem your investments. “KRAs are also in a fix and they cannot be blamed because lakhs of investors have been trying to validate since April 1 which they may find hard to process. Once systems are in place to validate one of the six documents then people can easily validate and till then the new rule should be put on hold,” he suggested. 

How to Validate Your KYC Online

The first step is to check your KYC status by visiting the official CDSL KRA website karvykra.com website or any other KRAs. Then click on 'KYC enquiry'. Enter your PAN number, and Captcha, and then click Search Now. Check the status and if it is "Validated." If the status reads "Registered" or "On hold," you need to validate your KYC.

Get your PAN Card, Aadhar Card, and copy of Signature. Next, go to your Mutual Fund house's KYC verification link. Enter your PAN number and date of Birth, and confirm you have the necessary documents. The next step is to validate your contact details and modify them if required. Click on the link for Aadhar-based verification and enter your Aadhar Number. Use the Mobile OTP to continue and in the next step enter the Digilocker Pin.

Validate the details of Proof of Address using Aadhar and click Next. Take a picture, add a User Code and upload your digital copy of Signature.

Preview and download the filled form for future reference. click on e-Sign and Submit. KRAs will process your KYC, and if approved, you can start seamlessly investing in new funds.