No Aadhaar-based authentication for mutual funds

UIDAI (Unique Identification Authority of India) have asked mutual fund houses, RTA (Registrars and Transfer Agents) and MFDs (Mutual Fund Distributors) to discontinue the Aadhar-based authentication. The above entities have to confirm the discontinuance of Aadhar-based authentication in writing and also to provide with an exit plan by 20th October 2018.

Fund houses used Aadhaar-based authentication whether the investor wanted to invest online or directly, apart from the physical KYC process wherein investors needed to walk-in to the mutual fund houses branch or RTA with the original and photocopies of ID and address proof to get it done.

e-KYC was done in two ways one with the help of OTP (One Time Password) and another with the help of biometric. The limitation of OTP based e-KYC is that, an investor could only invest maximum up to Rs. 50,000 per mutual fund house per year. The biometric-based Aadhaar authentication was done in-person via investor’s fingerprint and once it matches the Aadhaar database, investor can start with their investment in mutual funds.

It seems that mutual fund industry again have to switch back to the paper-based KYC. However, the process can be paced up to some extent with accepting scanned images of documents and filling of KYC form online instead of physical paper forms. Even doing KYC this way would take much more time than e-KYC.

SEBI has mandated the mutual fund houses to do an IPV (In-Person Verification) of all their customers. IPV needs to be done to make sure whether the investor is alive and is the actual person. SEBI must allow video conferencing to satisfy the IPV norms. Though this would speed up the process of KYC but still not as that of e-KYC.