Mutual fund KYC new rules for NRIs - Making MF investments difficult for NRIs

Mutual fund KYC rules for NRI The Securities and Exchange Board of India (Sebi) has implemented new Know-Your-Customer (KYC) rules from April 1, 2024. The new KYC rules are not only created problems for domestic mutual fund investors but also for Non-resident individuals as well. Here are three issues creating problems from NRI and OCI mutual fund investors.

The Indian stock market has become an attractive investment option for Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs). However, recent changes in regulations for mutual fund KYC (Know Your Customer) have made it difficult for new NRI and OCI investors to enter the market. Existing non-resident investors have also been affected. Due to this, many NRIs are losing out on the ability to capitalize on investment opportunities.

The new KYC norms, which came into effect on April 1, 2024, introduced stringent requirements, rendering certain documents such as bank statements or utility bills not considered valid documents for completing the KYC process. While the new rules aim to enhance security and compliance, they have inadvertently created investment barriers for NRIs.

As per the Aadhaar rules, NRIs and OCIs with foreign mobile numbers are exempted from the Aadhaar-linked OTP verification requirements, provided their PAN reflects their NRI status. Despite such an exemption, the new KYC norms of compulsory Aadhaar validation to get 'KYC Validation' status portray a different scenario and have created a conflict of regulations for the Indian diaspora.

MF investments difficult for NRIs

Following are the issues that NRIs and OCIs are facing in making mutual fund investments due to the new KYC rules -

• Limited Aadhaar Integration : Although 25% of NRIs possess an Aadhaar number, only 7% have successfully linked it with an Indian mobile number. This poses a significant hurdle as Aadhaar authentication often requires OTP verification, which is contingent upon an active Indian mobile connection.
• Challenges with OTP Verification : A mere 3% of NRIs have receive OTPs on their Indian mobile numbers due to various issues such as number inactivity, carrier problems, or message delivery failures. Consequently, attempts to update KYC status or validate credentials through the Centralized KYC Registration Agency (CKYC) website have hit a roadblock.
• International Number Restrictions : Many NRIs face a Catch-22 situation where they cannot update their KYC status with certain Asset Management Companies (AMCs) due to their international mobile numbers. Despite efforts to engage with other top KRAs (KYC Registration Agencies), the lack of OTP delivery to international numbers persists, further complicating the KYC situation.

These challenges have left NRIs feeling disheartened, affecting their aspirations of investing in Indian mutual funds. The inability to complete the KYC process stalls investment opportunities and engenders a sense of exclusion from their homeland's financial opportunity.

The rise in NRI deposits inflows in mutual funds to $12 billion in April 2023 to February 2024 from $6.4billion, an 84% rise compared to the preceding period, showcases intent and the rise in investing prowess of NRIs and OCIs while also showcasing the trust in the Indian economy.

A swift resolution of KYC norms for our Indian diaspora can help bring those interested to the investment scene and add to the growing numbers of investors in the Indian market, boosting our market size and market cap in return.

While the new mutual fund KYC landscape presents formidable challenges for NRIs, it also underscores the need for innovation and collaboration within the financial ecosystem. As advocates for accessible and inclusive investment ecosystems, we remain optimistic that collaborative efforts between regulatory bodies, financial institutions, and technology providers can pave the way for solutions. By addressing the barriers to KYC compliance, we can unlock the full potential of NRIs and OCIs as valued contributors to India's economic growth story.

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