SEBI makes KYC mandatory for E-wallets used to invest in Mutual Funds

By Leandra Monteiro

The SEBI, recently issued a circular wherein E-wallets used for making investments in mutual funds should be compliant with KYC norms prescribed by the Reserve Bank of India.

In its circular, the regulator said that the provisions will be applicable with effect from May 1, 2023. It allowed the use of e-wallets for investment in mutual funds within the umbrella limit of INR 50,000.

Speaking about the recent announcement, Jitendra Dhaka, Founder, BankSathi shared, “For Tier 1 and 2 cities customers, KYC requirements will ensure that only authorised users have access to e-wallets, thereby boosting security and decreasing the risk of fraud. By integrating KYC to e-wallets, clients will have improved investment transparency, as they will be able to trace their mutual fund holdings and transactions more easily. After the completion of the KYC procedure, consumers will be able to invest in mutual funds using e-wallets without the burden of continuously providing physical documents.”

He went on to add that the KYC norms may approve to be a bit of a challenge for Tier 3, Tier 4 and Tier 5 cities as quite a few people are unfamiliar with the KYC process and struggle to understand the digital criteria and processes involved in it. Dhaka said, “The SEBI and the companies that supply e-wallets have a responsibility to inform users about the advantages of KYC and to simplify the process of completing KYC for customers in Tier 2 and Tier 3 locations. E-wallet service providers should also study other ways for users to complete KYC, such as the installation of kiosks or the formation of partnerships with local agents who can assist customers through the process.”

Mutual funds are investments made up of a pool of funds collected from a number of investors. The funds are invested in stocks, bonds and money market instruments.