If you keep too many entry check points, you won’t be able to attract many customers to your products. In India, reach and popularity of financial products such as mutual funds and insurance is not very exciting considering the large population base of the country. Lack of awareness and rampant mis-selling by representatives of insurance and mutual fund companies have been the main reasons for the kind of stunted base mutual funds and insurance companies have. Well, it is arguable that, most of us have insurance policies, however, please check if it is the right insurance policy with adequate cover. Mutual funds, in spite of being present for decades now, have not become as popular as they should have become considering benefits of investing in them.

One school of thought says, too much of paperwork and complicated enrollment discourages investors from investing in financial products. And to an extent, this is true. Don’t you provide the same set of documents to your bank, to insurance companies with whom you have insurance policies, and also to mutual funds whom you trust with your hard-earned money? Residential proof, Photo Identity proof, etc. are the typical documents. Plus, you need to fill a separate KYC form which these financial institutions provide you. Even from the point of view of maintenance, this data eats up a lot of physical and/or digital space. To overcome this, Union Budget 2012-13 had proposed to launch a Central Know Your Customer (KYC) depository to avoid duplication of records.

What is Central KYC?
Four years have elapsed since then, and now we are finally going to shift to a regime of central KYC. July 15, 2016, was set as a deadline. The Government has appointed Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) to establish a central KYC registry. It will be responsible for receiving, storing, and retrieving KYC data in digital form. CERSAI has finalised the template of central KYC and has issued reporting guidelines to entities uploading KYC records. In this regard, the IRDA has already issued a circular to insurance companies, both offering life and health insurance products.

How will this be beneficial to investors?
Suppose you have submitted KYC documents to your bank, and now you want to buy a life insurance policy from the insurance company, you won’t have to fulfil any KYC formalities of the insurance company. The insurance company will directly retrieve the data it requires from the data bank of CERSAI.

And this is something you may not have read before...
If you think convenience has been the only consideration behind setting up central KYC registry, you are probably missing the bigger picture. The concept of central KYC is based on the idea that the customer won’t need to use multiple documents as proof of identity or residence. For example, as a residential proof, he/she might provide a copy of passport and on another occasion he/she might furnish a copy of driving license. Now to club this data and arrive at the conclusion that both investments belong to the same person is difficult, although it’s not possible. But how about this now? Because of Central KYC now the job of authorities will be reduced to retrieving the investment data against the single photo identity proof and only address proof. To know how many financial investments you hold in your name, authorities will have to take lesser efforts. Those who invest unaccounted money in financial instruments assuming they aren't being watched are likely to encounter trouble now. This is why PersonalFN always encourages its readers and investors to pay all tax dues and file returns on time.

Having said this, even this method is not a sure way to catch a person engaged in money laundering activities. Moreover, there’s no guarantee that, this method won’t be changed in future. Do you recollect mutual funds changed their KYC requirement forms several times and made you comply separately with each of them, every time they changed the procedure? Hopefully, the Government will maintain consistency with central KYC.

As far as the convenience of investors goes, it will improve. However, there’s no guarantee that their response to financial products will improve. PersonalFN believes, there’s no alternative to educating people about the effectiveness of financial products. The regulators too will have to ensure that malpractices are nipped so that investors feel confident about investing in mutual funds and buying insurance products.

Consider this...
People don’t have trouble to comply with compliance requirements of banks. And even if they have, they live with it. You know why? Because a bank account is something you can’t do without. The same is not true of mutual funds and insurance policies. Of course, this is what and how a common man thinks. Unless they realise the importance of insurance and mutual funds, they will stay away from investing in them. Under such circumstances, tough KYC norms would discourage them further. Now with central KYC at least this will change.

After all, who will take the responsibility to educate investors? Playing its part, PersonalFN has been working relentlessly towards that.

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anandalamani20001@gmail.com Aug 11, 2019 In my no from kuch OTp was not coming
mjthakkar316@yahoo.com Jul 19, 2016 Dear Sir / Madam What is the procedure and kind of documents to be required for NRI for an investment in Mutual Fund in India (NRI of Kuwait) You are requested to guide me as soon as possible. Thanks Regards Minesh

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