KYC and nomination in mutual fund folios
Who the investor is, and who gets the units after them. The rules an RTA applies to both.
KYC (Know Your Customer) is how a mutual fund confirms who an investor is before accepting money, as required under the Prevention of Money Laundering Act. Nomination is how the investor says who should get the units on death. Both sit in the folio that the RTA maintains, and both are tested in Unit 12 of the Series II-B workbook.
For an RTA the two connect at one point: the death of an investor. KYC records now carry the death flag across the market, and the nomination decides who the units go to next. This page covers KYC, then nomination, then the 2023 demise reporting mechanism that links them.
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The KYC building blocks
- PAN
- The single identification number for all financial market transactions. Intermediaries verify it online on the Income Tax website.
- PEKRN
- PAN Exempt KYC Reference Number, issued by a KRA to investors who are exempt from PAN (see below). Quoted on the application instead of a PAN.
- KRA
- KYC Registration Agency. Holds KYC records so that KYC done once is valid across mutual funds and other SEBI-registered intermediaries. KRAs share data with each other through inter-operability.
- eKYC
- Paperless, Aadhaar-based KYC using an OTP. Done through a KYC User Agency (KUA) or a sub-KUA such as an intermediary or distributor.
- IPV
- In Person Verification. Not needed when KYC is done through Aadhaar authentication, or when the form is submitted online with documents from DigiLocker or another source that can be verified online.
- CKYCR
- Central KYC Records Registry, run by CERSAI since a Government notification of November 26, 2015. It de-duplicates records and issues a unique KYC Identifier.
Which limit applies where
Three rupee limits in this unit, all Rs 50,000. Each means something different.
| Situation | Rule |
|---|---|
| Micro-SIP and small lump sums without PAN | Up to Rs 50,000 per investor per mutual fund per year (SIP and lump sum together). KYC with a KRA is still required; quote the PEKRN. |
| OTP-based eKYC | Investment restricted to Rs 50,000 per year per mutual fund, paid electronically from the registered bank account. Above that, IPV or biometric authentication is needed. |
| No threshold at all | Investors resident in Sikkim, tax-exempt UN entities and multilateral agencies, and investments on behalf of Government undertakings are PAN-exempt without a limit. |
KYC status after KRA validation
The KRA validates Aadhaar with UIDAI, mobile and e-mail by OTP or delivery status, and PAN with the Income Tax database.
- check_circleKYC Validated: Aadhaar was the officially valid document and all attributes checked out. The investor can open accounts with any intermediary without repeating KYC.
- check_circleKYC Registered: a non-Aadhaar document was used, so name and address could not be checked against source data. The investor can transact only with existing funds.
- check_circlePAN-Aadhaar link not verified: under SEBI's 14 May 2024 circular this no longer decides KYC status. The client can transact with the existing intermediary on a valid PAN, but the KYC is not portable.
- check_circleCKYCR: intermediaries upload KYC of individual accounts opened on or after August 1, 2016, and of legal entity accounts opened from April 2021. An investor who gives the KYC Identifier and consent does not resubmit documents.
Free account, this exam preselected.
Nomination rules an RTA applies
- checkOnly individual investors can nominate. Not companies, trusts, HUFs or minors' folios.
- checkUp to three nominees per folio. With more than one, the shares must be stated and add up to 100 percent.
- checkA minor can be a nominee, with a guardian named. The first holder of the folio cannot be the guardian of a minor nominee in that folio.
- checkA Power of Attorney holder cannot make or change a nomination, and cannot be the nominee.
- checkEvery individual investor must either nominate or opt out through a signed declaration (SEBI circulars of June and July 2022).
- checkOnline nomination forms are validated by e-Sign or by two-factor authentication with an OTP to the registered e-mail or phone, instead of wet signatures of all holders.
- checkNominees get rights only on the death of all unit holders. For demat units, the nomination held with the depository participant applies.
- checkA nomination change is a non-financial transaction, signed as per the mode of holding. The RTA has 21 days to process it.
Reporting an investor's death through the KRA
SEBI circular of October 03, 2023, effective January 01, 2024. The first intermediary told (or that infers the death) is the 'concerned intermediary'.
- 1
1. Intimation
A joint holder, nominee, legal representative or family member informs the RTA or AMC and gives the death certificate and PAN of the deceased.
- 2
2. Verify by the next working day
Online on the issuing authority's website, or by Original Seen and Verified (OSV). Keep the notifier's ID proof, relationship and contact details.
- 3
3. Same day: update the KRA and block
File a KYC modification request ('death certificate verified') and block all debit transactions, and non-financial requests, in the deceased's folios. Joint folios in either-or-survivor or anyone-or-survivor mode keep operating.
- 4
4. KRA validates by the next working day
It checks independently, contacts linked intermediaries and marks the KYC 'Blocked Permanently', telling all of them.
- 5
5. Within 5 days: tell the claimant how to claim
Every intermediary holding the investor's accounts sends the nominee, notifier or surviving joint holder the transmission procedure, form and document list.
No death certificate yet: 'On Hold'
If the intermediary cannot get the death certificate, it files a request by the next working day saying confirmation is awaited, and the KRA flags the KYC 'On Hold'. A transaction on an On Hold folio is allowed only after extra due diligence, such as a video call or IPV, that shows the investor is alive. If the report turns out false, the KYC goes back to 'Clear or Validated' the same day.
How the Series II-B exam tests this
- check_circleWho cannot be a nominee: the PoA holder. Who cannot nominate: non-individuals and minors' folios.
- check_circleMaximum nominees per folio: three, with percentages totalling 100.
- check_circleWhich agency runs CKYCR: CERSAI.
- check_circleThe Rs 50,000 limits: PAN exemption (Micro-SIP plus lump sum) versus the OTP-based eKYC cap. Know which is which.
- check_circleDemise reporting: KRA statuses 'On Hold' and 'Blocked Permanently', and that either-or-survivor joint folios keep operating.
FAQs
How many nominees can a mutual fund folio have?expand_more
Up to three. Where there is more than one, the investor states each nominee's percentage, and the shares must add up to 100 percent.
Is nomination compulsory in mutual funds?expand_more
Every individual investor must either declare a nominee or opt out of nomination through a signed declaration. Non-individual investors cannot nominate.
What is the difference between a KRA and CKYCR?expand_more
A KRA is a SEBI-registered agency holding KYC records for the securities market. CKYCR, run by CERSAI, holds KYC records for the whole financial sector and issues a unique KYC Identifier.
What happens to a folio when the RTA learns the investor has died?expand_more
After verifying the death certificate, the RTA files a KYC modification with the KRA and blocks debits in the folio the same day. The KRA marks the KYC 'Blocked Permanently', and the claimant is told the transmission procedure within 5 days.
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