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The Securities and Exchange Board of India (SEBI) has released a consultation paper proposing to standardise the process for opening mutual fund folios and executing the first investment.
The market regulator has invited comments from the public on the proposal titled "Process for Opening of Mutual Fund Folios and Execution of First Investment" by November 14, 2025. According to SEBI, the objective of the consultation paper is to streamline and make uniform the procedure for opening new mutual fund folios. The proposal seeks to ensure that every new folio is fully Know Your Client (KYC) compliant, both at the Asset Management Company (AMC) level and in the KYC Registration Agency (KRA) system, before any transaction or investment takes place. Investors will be able to transact only after KYC verification is successfully completed and marked compliant in the KRA records. In an official statement SEBI on Thursday stated "The objective of this consultation paper is to solicit comments on the proposed standardization of process for opening of Mutual Fund Folios and execution of first investment". SEBI highlighted that while new folios are required to be opened only after KYC completion, instances of non-compliant folios have arisen due to the sequential verification process currently followed. Typically, AMCs conduct internal KYC checks and process investments while sending documents to KRAs for final verification. If the KRA later finds discrepancies, the folio is marked as KYC non-compliant until the issue is resolved. This process, according to SEBI, has led to difficulties for both investors and AMCs. Investors have faced issues such as being unable to execute transactions or receive redemption proceeds and dividends when their bank details are incorrect. Meanwhile, AMCs have struggled to communicate with investors and credit redemption proceeds in such cases, resulting in an increase in unclaimed funds. To address these challenges, SEBI's draft circular proposes that the first investment in a new folio be permitted only after the KRA completes KYC verification and the folio is marked compliant. AMCs will also be required to keep investors informed at every stage of the KYC process through their registered email and mobile numbers. Public comments on the proposal can be submitted through SEBI's web-b ased form available on their website under the public comments section. (ANI)
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