In an important step toward simplifying investor onboarding and improving operational consistency across the mutual fund industry, the Securities and Exchange Board of India (SEBI) has released a Consultation Paper on the Standardisation of the Process for Opening Mutual Fund Folios and Execution of First Investment. The paper seeks public comments on a draft circular that aims to address operational inefficiencies and investor inconveniences caused by non-standardized practices in KYC (Know Your Client) verification and folio creation.
The consultation paper is open for public feedback until November 14, 2025, and comments can be submitted through SEBI’s online public comment portal.
Objective of the Consultation
The primary objective of this consultation paper is to standardise the process of opening new mutual fund folios and executing the first investment while ensuring that every investor’s KYC verification is fully completed and validated both at the Asset Management Company (AMC) level and within the KYC Registration Agency (KRA) system before any transaction is initiated.
Under the proposal, investors will be permitted to commence transactions or investments only after the KRA has successfully verified their KYC and marked the folio as KYC compliant.
This initiative aims to bring greater transparency, accountability, and investor protection to the mutual fund investment process by reducing errors, preventing unverified transactions, and ensuring that only verified investors can hold mutual fund folios.
Background: Addressing Existing Challenges
Currently, mutual fund folio creation follows a sequential KYC verification process, which has led to instances where investors’ folios remain KYC non-compliant even after the first investment is processed.
The problem typically arises when:
- The AMC conducts preliminary KYC checks and processes an investment, while simultaneously forwarding documents to the KRA for final verification.
- If the KRA subsequently detects discrepancies or incomplete information, the folio remains non-compliant until the investor rectifies the issues.
This sequential gap has led to multiple practical challenges:
For Investors:
- Delays in executing new investments under a different scheme.
- Non-receipt of redemption proceeds or dividends when bank details are inaccurate.
For AMCs:
- Inability to deliver essential communication (physical or digital) due to incomplete address or contact details.
- Growth in unclaimed dividends and redemptions because of incorrect banking information.
Proposed Solution
The draft circular—“Process for Opening of Mutual Fund Folios and Execution of First Investment”—proposes a standardised procedure that requires all new folios to be created only after KYC compliance is confirmed by both the AMC and the KRA.
This ensures that:
- Investments are initiated only after full verification, eliminating premature transactions.
- Both investors and AMCs operate within a consistent, transparent framework, reducing the risk of compliance disputes.
Public Consultation Process
SEBI has invited stakeholders—including investors, intermediaries, AMCs, and industry associations—to provide their views and suggestions on the proposed framework.
Deadline: November 14, 2025
Mode of Submission: Online via SEBI’s public comment portal at:
👉 https://www.sebi.gov.in/sebiweb/publiccommentv2/PublicCommentAction.do?doPublicComments=yes
Participants must fill out the online web-based form, providing their organization type, contact details, and level of agreement for each proposal outlined in the consultation paper.
Conclusion
This consultation marks another proactive step by SEBI to enhance the efficiency, transparency, and investor experience in India’s mutual fund ecosystem. By standardising the folio opening and first investment process, SEBI seeks to eliminate procedural inconsistencies, strengthen KYC compliance, and reduce the volume of unclaimed investor funds.
Stakeholders are encouraged to actively participate in this consultation process and contribute to shaping a more robust, investor-friendly regulatory framework for India’s mutual fund industry.