New KYC rule to curb unclaimed dividends and blocked redemptions The absence of interoperability between Sebi’s PAN-based system and the government’s CKYC means investors will still need to complete multiple verifications. India’s markets regulator has proposed tighter know-your-customer (KYC) checks for mutual fund investors, but stopped short of creating a single centralized verification system—something the industry has long sought for seamless onboarding across the country’s financial platforms.
In the draft rules, released Thursday, the Securities and Exchange Board of India (Sebi) said fund houses can accept a first-time investment or open a new folio only after an investor’s KYC is fully verified and marked “compliant” by the KYC Registration Agency (KRA), a move to prevent rising cases of unclaimed dividends and blocked redemptions and to improve compliance among mutual funds.
But the absence of interoperability between Sebi’s PAN-based system and the government’s Central KYC (CKYC) means investors still need to complete multiple verifications across banks, insurance, and mutual funds.
Currently, asset management companies (AMCs) often open a folio and start the KYC registration process simultaneously. If the KRA detects discrepancies, such as the absence or mismatch in documents, the folio is marked as KYC “non-compliant”. This often blocks redemptions or dividend payouts, forcing such funds into the “unclaimed” category.
Unclaimed investor money in mutual funds surged 21% in FY25 to Rs 3,452 crore, according to Sebi. Of this, unclaimed dividends rose 26%, and redemptions by about 10%.
Though MFs are happy that these changes are being made, the lack of a unified verification mechanism, such as a Central KYC, remains an issue. The Central KYC system is managed by the government through the Central Registry of Securitization Asset Reconstruction and Security Interest of India (CERSAI), which assigns a single KYC number usable across financial entities. This isn’t fully interoperable with the capital market’s PAN-based check.
“Suppose I am opening a bank account in State Bank of India and I have my CKYC. And tomorrow I go and I want to open a fund in ICICI Bank also. With the same KYC number, I can do that. But that I cannot do in a mutual fund today. That is a gap,” said D.P. Singh, deputy managing director at SBI Mutual Fund.
The industry has seen strong growth over the years. It managed assets worth Rs 75.61 trillion as of end September, up about Rs 8.5 trillion from a year ago.
This fiscal year’s Union Budget had also announced a revamped CKYC registry to unify KYC processes across banks, MFs, insurance and pension systems. The system is likely to be launched in March.
Experts said they’ve had several rounds of talks with Sebi and the government on Central KYC. “Why do multiple KYCs exist? The process remains the same, submission of documents remains the same. Your bank account remains the same, and your bank is linked with Aadhaar. But unfortunately, the regulators (Sebi and the Reserve Bank of India) are not in a position to shake hands for whatever reasons,” said Jimmy Patel, managing director at Quantum AMC.
RBI did not respond to Mint queries. “Talks between RBI and Sebi have not yet been initiated,” said a Sebi spokesperson.