The Securities and Exchange Board of India on Thursday has released a consultation paper proposing a uniform process for opening mutual fund folios and executing the first investment.
The market regulator aims to ensure that all new folios are fully Know Your Client (KYC) compliant both at the Asset Management Company level and within the KYC Registration Agency system before any investment is allowed.
Under the proposal, investors will be permitted to make their first investment only after the KRA completes KYC verification and marks the folio as compliant. SEBI has also proposed that investors be informed of their KYC status at every stage through their registered email and mobile number.
The paper notes that despite SEBI's existing requirement for mandatory KYC verification before opening new folios, instances of non-compliance have emerged due to sequential verification processes. Typically, AMCs conduct internal checks and forward documents to KRAs for final verification.
However, if KRAs find discrepancies, the folio is marked non-compliant until the issues are resolved. This has led to operational challenges such as delays in transactions, communication failures, and increased unclaimed dividends or redemptions.
To address these issues, SEBI's draft circular titled “Process for Opening of Mutual Fund Folios and Execution of First Investment” lays out a standardised workflow for AMCs, KRAs, and intermediaries. The regulator has directed these entities to update their internal systems accordingly once the new framework comes into effect.
Public comments on the proposal are open until November 14, 2025. Stakeholders can submit their suggestions via SEBI's online public comment form available here.
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