SEBI Issues Consultation Paper to Standardise Mutual Fund Folio Opening and First Investment Process

The Securities and Exchange Board of India (SEBI) has released a consultation paper, proposing a uniform process for the opening of mutual fund folios and execution of the first investment.

The step has been taken by the regulator to streamline Know Your Client (KYC) verification, reduce investor inconvenience and to enhance compliance consistency across the mutual fund industry.

The proposal follows instances where new mutual fund folios were created and investments were executed before the completion of KYC verification by the KYC Registration Agency (KRA). SEBI noted that this sequential process, where Asset Management Companies (AMCs) first conducted internal checks and later forwarded documents to KRAs for verification occasionally resulted in folios being marked as KYC non-compliant due to deficiencies in submissions or mismatched details.

The situation often led to transactional and operational impediments where investors were unable to make new investments, receive redemption proceeds or obtain dividend payments in cases where bank or address details were incorrect.

AMCs, on the other hand faced difficulties in sending physical or email communications to unitholders and in crediting proceeds and dividends into the bank accounts of the unitholders, leading to an increase in unclaimed redemptions and dividends.

Under the proposed framework, AMCs will create folios only after obtaining and verifying account opening documents as per the SEBI Master Circular on KYC norms for the securities market dated October 12, 2023.

Once the KYC documents are forwarded to the KRA and the verification is completed, the folio will be marked as KYC compliant, after which the investor may execute the first investment.

Investors will be notified at each stage of the KYC process through their registered email and mobile number. SEBI has also directed AMCs, KRAs and other intermediaries to update their internal systems and workflows to ensure full compliance with the standardised procedure.

Public comments on the ‘Process for opening of Mutual Fund Folios and Execution of First Investment’ consultation paper are invited by SEBI until November 14, 2025, through the regulator’s web-based feedback form.

Once finalised, the circular will be issued under Section 11(1) of the SEBI Act, 1992, read with the relevant provisions of the SEBI (Mutual Funds) Regulations, 1996 and the SEBI (KYC Registration Agency) Regulations, 2011.

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