Sebi should be tougher on implementing KYC norms

Last Updated: Fri, Nov 30, 2012 04:10 hrs

Retail investors find it easy to complain. But they seldom help themselves by doing things on time – much like filing of returns. This is a good opportunity to make amends. With the November 30 deadline looming large, they should complete their Know-Your-Customer (KYC) guidelines with the respective fund houses. The documents required include your PAN card, father’s name, nationality, marital status, in-person verification and even net worth.

Complying with the new KYC is extremely important because it will allow investors to put money in all Securities and Exchange Board of India (Sebi)-regulated financial intermediaries such as stocks, mutual funds, depository participants, portfolio managers, collective income schemes and venture capital funds. However, if you do not or are unable to comply with the guideline, Sebi has allowed investments in existing schemes to continue. In other words, your systematic investment plans (SIPs) will not suffer.

But before you do the KYC, here is a tip. Do not just sign on the document and let the distributor fill the rest of the columns, especially the net worth one. In the past, investors have found themselves in deep trouble because their income, net worth and investments in the form were widely different. For instance, financial planners say notices were sent to clients who had shown a couple of lakhs as income and Rs 60-70 lakh as investment – most times, it was filled by someone else. While meeting the deadline for everyone may be difficult for practical reasons, for some may be travelling abroad or unable to comply with the in-person verification due to health reasons, but given the tough market conditions, most may just delay it because they are not planning to invest money immediately or the near future.

Sebi, on its part, could have been tougher on implementing the KYC. For retail investors, this is one step that would make investments across a number of instruments so much easier. Both fund houses and distributors should ask investors to do it immediately.

But given the consistent fund outflow from equities, fund houses might not want to enforce this for the fear of more folio losses – the industry has already lost 300,000 folios between September 2011 and September 2012. But they could use the carrot that there will be missed opportunities when the market conditions improve, if investors do not do the KYC now.

“In fact, if Sebi wants to be really strict, they could disallow withdrawal unless the KYC is done. This will be a tougher measure than not allowing them to invest money,” says financial planner Gaurav Mashruwala.

The next step needs to be taken by the government. By roping in the Reserve Bank of India, Insurance Regulatory and Development Authority and Pension Fund Regulatory and Development Authority to introduce a common KYC for all financial transactions, life will become easy for everyone, including tax authorities.

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