SDG 9: Industry, Innovation and Infrastructure | SDG 16: Peace, Justice and Strong Institutions
Institutions: Securities and Exchange Board of India (SEBI) | Ministry of Finance
The Securities and Exchange Board of India (SEBI) has released a consultation paper to standardize and streamline the process for opening Mutual Fund (MF) folios and executing the first investment. The key proposal aims to eliminate issues arising from the current sequential verification process, which often leads to the creation of KYC non-compliant folios.
Under the proposed standardized framework, investors will only be permitted to execute the first transaction once their KYC (Know Your Client) verification is fully completed and marked compliant by the KYC Registration Agency (KRA). This change prevents problems like:
Delays in executing new transactions in other schemes.
The inability of investors to receive redemption proceeds or dividends due to incorrect bank details.
An increase in the quantum of unclaimed dividends and redemptions in the system.
The deadline for submitting public comments on this proposal is November 14, 2025.
This proposed procedural change is a significant regulatory step aimed at improving investor protection, transparency, and operational integrity across the rapidly growing Indian mutual fund industry. By mandating full compliance before investment, SEBI seeks to enhance the robustness of the KYC system and reduce financial and communication risks for millions of retail investors.
What is a “KYC non-compliant folio” in the mutual fund industry?→ A KYC non-compliant folio refers to a mutual fund account where the investor’s Know Your Client (KYC) documentation, though submitted to the Asset Management Company (AMC), has not yet been fully verified and marked as ‘compliant’ by the central KYC Registration Agency (KRA). This status can temporarily block the investor from receiving redemptions or executing transactions, leading to operational friction and investor inconvenience.
Follow the full update here: Consultation paper on Standardization of process for Opening of Mutual Fund Folios and Execution of First Investment