If you are trying to invest in mutual funds for the first time, KYC is usually the first step. You fill the form, upload documents, do video verification, and only then you are allowed to invest. This may seem like a daunting task to many, especially in the excitement of making their first investment. So is there any way to invest in mutual funds without completing KYC? The answer will mostly be no. In India, KYC is not optional for mutual fund investing. But there are some limited situations where you may be allowed to invest a small amount without completing full KYC, which is why there is a lot of confusion.
Why is KYC important?
Mutual funds in India are regulated by the Securities and Exchange Board of India. Under anti-money laundering regulations and investor identification norms, every mutual fund investor is required to complete KYC. This applies whether you invest directly with the AMC or through an app, distributor or bank. KYC is linked to your PAN and confirms your identity, address and tax status. Without this, the fund house is not allowed to invest more than a very limited limit.
Rule of discount of Rs 50,000
According to the current rules, an investor who has not completed KYC can be allowed to invest up to Rs 50,000 in every financial year in all mutual funds combined. This is not for every fund or every AMC. This is a total limit. In this method also, you will have to submit your basic identity information like your PAN or any other valid document. This is sometimes called PAN exempt investing, but it does not mean anonymous investing. This is only exemption from complete KYC, not exemption from identification.
Also, many platforms and fund houses no longer offer this option because it is operationally difficult. In fact, most online platforms will insist on KYC before allowing you to invest even a single rupee. What happens if you invest without completing KYC?
If you succeed in investing under the limited discount and later cross the limit of Rs 50,000 without completing KYC, your transactions will be blocked. You will not be able to make further investments, start SIPs, or in some cases even redeem, until KYC is completed. Dividend or redemption amount may also be withheld, which can be stressful if you need money immediately.
Is it right to try to avoid KYC?
For most investors, trying to invest without KYC is not a hassle. Today KYC is a one-time process. Once completed, it works across all mutual funds, platforms and AMCs. Online KYC, which includes video verification, typically takes less than ten minutes. Avoiding KYC limits your investment amount, limits your options, and creates problems in the future when you want to add more money or withdraw it easily.
Investing without KYC is a myth
In India, investing in mutual funds without KYC is largely a myth. Apart from a small and diminishing exemption for low value investments, KYC is required. If you are serious about investing, completing KYC at the beginning is the easiest and cleanest way to get started and stay invested without any hassles.