To invest in mutual funds you need to do your know-your-customer (KYC) before investing in mutual funds.
Till September, mutual fund houses and online distribution platforms used e-KYC process for quick online verification process. e-KYC allowed you to verify based on Aadhaar number and a one-time password.
After the Supreme Court judgement that no private entities should use Aadhaar data, mid-way through the year, Unique Identification Authority of India (UIDAI), issuing authority of Aadhaar cards, invalidated E-KYC norms. Platforms that sell mutual funds were using e-KYC for the process. Once it got banned, the online platforms were not able to use e-KYC.
End of E-NACH
National Automated Clearing House (NACH) was introduced in May 2016, a common platform was created where almost all banks were included and NACH also had a pan India presence for auto-debit, said said Pawan Agrawal, founder of Investguru.in, a personal finance advisory platform. Government also launched enach facility were the registration could be done online. e-NACH was an easy platform for mutual fund investment as it provided one-time mandate of digital verification for signature. “The bank has to verify the signature and register an auto-debit in your account,” said Agrawal. However, after the SC ruling on ban of Aadhaar authentication by private entities, the e-NACH platform has been discontinued.
Discontinuation of e-KYC and e-NACH means the industry has to now rely on paper-based verification and authentication. “Earlier when mutual fund distributors like ours could validate the KYC and Aadhaar details online by just sending an OTP (one-time password) to the customer. Now the customers have to go through the added burden of paperwork for completing KYC norms to be able to transact in mutual funds online,” said Srikanth Meenakshi, co-founder and chief operating officer, Fundsindia.com. Like fintech companies, mutual fund houses and distributors are currently on a wait and watch mode. Some of the companies are considering using video-based authentication for KYC process. However, it is still early days.