SEBI Proposes New Framework For Improved KYC Process for Mutual Fund Folios

Mumbai, October 24: The Securities and Exchange Board of India (SEBI) has announced that it has proposed a new framework for mutual funds. The proposal is aimed at standardising the process of mutual fund portfolios and the process of executing the first investment. With the new framework, SEBI wants to ensure that new folios in mutual funds are created only after completing the Know Your Client (KYC) verification.

Solving the Current Problem

With the new framework, SEBI wants to solve the current problem where mutual fund folios are created even before completing the Know Your Client (KYC) verification by KYC Registration Agencies (KRAs). Although the existing rules by SEBI mandate that such folios must be opened after KYC verification, there have been instances where non-compliance has been identified.

The New Framework

Under the new framework, Asset Management Companies (AMCs) are required to create mutual fund folios only after verifying investor documents in line with KYC norms. Once verification is done, these documents will then be forwarded to KRAs, where final verification will be done by the KRAs. Only after the KRA identifies the folio as KYC-compliant in its system, the first investment will be permitted.

Why The New Framework?

The new framework comes after AMCs communicated that they are facing operational difficulties at the time when discrepancies arise during KRA verification. If this happens, investors are unable to transact, redeem, or receive dividends. At the same time, fund houses also struggle to communicate key updates to investors and credit redemption proceeds into their bank accounts. This leads to unclaimed investments.

Enhancing Transparency

Apart from the new framework, SEBI also plans to enhance transparency by mandating that investors must be notified at each stage of the KYC process through their registered email and mobile number. Furthermore, both MCs and KRAs will be required to change their internal systems and workflows with the proposed framework.

SEBI has also announced that it is inviting public comments on the proposed framework, which can be submitted until November 14, 2025.

REF: https://www.sebi.gov.in/sebi_data/attachdocs/oct-2025/1761210652019.pdf

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