Over 8,50,000 new SIPs started in January 2020. Of these, it is estimated that over 30% were created online. Platforms that help start an SIP online are portals of fintechs, banks, mutual fund advisors or MF company website. In this article, we present a comprehensive guide on identifying the right investing platform, how to get your KYC done online and being investment ready
What is covered in this article?
How to Start an SIP?
Starting a mutual fund SIP investment is really easy.
You can do it at the comfort of your home or office in a paperless format on your computer or mobile phone. This step-by-step guide delves on two of the most important areas that you need to know – 1. How to identify the platform from where you’d want to start an SIP and 2. How to complete your KYC online with no hassles
Once these two steps are completed, you are deemed investment ready and can start purchasing mutual fund units. The purchases can be in lumpsum or SIP (systematic investment plan) mode through the platform.
Identify the Right Online Mutual Fund Investing Platform
There are many benefits of mutual funds which include wealth creation, wealth preservation, flexibility and financial freedom.
The same flexibility is available in you deciding which platform to invest from. The many platforms for mutual fund investing and starting an SIP. These are –
I started investing this way. But found it too cumbersome having to save the login and password for each mutual fund website. It didn’t help that every website has its own password policy. Some portals required me to change the password every 30 days. What a pain!
2. Use fintech platforms like MyCAMS, ETMONEY, Groww, Zerodha, PayTM Money, FundsIndia, Scripbox etc. These portals allow you to invest in mutual funds schemes and start an SIP offered by different AMCs under one roof. I prefer this method and use MyCAMS and ETMONEY for investing in mutual funds.
But not all platforms are the same
Comparison between different mutual fund investing platforms
Let’s look at the difference in each of the platforms.
- Platforms like ETMONEY, Groww and PayTM Money offer direct mutual funds. Direct mutual funds are zero-commission mutual funds
- Zerodha Coin too offers direct mutual fund. However it requires you to maintain the units in the demat mode. Drawing parallels, mutual fund units offered by platforms like ETMONEY or Groww are in SOA or Statement of Account mode.
- FundsIndia and Scripbox offer regular mutual funds currently. Regular mutual funds have commission built into the NAV. This commission is a compensation to the distributor who has advised the investor. It also means the investors make lower returns as against the direct plan of the same scheme. A related point is that some unscrupulous financial advisors trick investors into thinking regular plans are more profitable than direct plans. Do be careful of such commission agents.
- MyCAMS is a platform from CAMS*. The portal allows you to invest in schemes of CAMS operated fund houses. MyCAMS is not a snazzy website but it does get the job done. I have, however, reduced my use of MyCAMS as it can’t access funds with the other RT&As.
All these platforms can help you achieve your wealth creation goals and start an SIP. Give it a try by picking the best SIP investments for 2020.
What is CAMS?
*CAMS is one of three primary Registrar & Transfer Agents (RT&A) approved by SEBI. CAMS works with mutual fund houses like Kotak, DSP, SBI, TATA, ICICI Prudential, HDFC etc. The role of the RT&A is to keep the records for mutual funds and do a lot of the non-core work. This includes recording transactions of investors, changing nominee, changing address, updating bank account etc. Other than CAMS, there are two other primary RT&As: Karvy and Franklin Templeton.
The table below offers a comparison of offerings from some popular mutual fund investing platforms.
Demat and SOA (Statement of Accounts)
Let’s look at the pros and cons of keeping their mutuals funds in SOA (statement of accounts) and demat form.
I keep all my mutual fund accounts in an SOA format and have never faced any issues. Every AMC (or RT&A) emails me the statement of accounts. This happens in scenarios like when the amount towards an SIP gets debited from my bank account. I can also get a consolidated view of investments in all mutual funds in a single PDF which is a great functionality.
Thank you! (whoever thought of it)
Investors often confuse the SOA mode holding of mutual funds with physical mode. Actually, there is no physical way to hold mutual fund units. The units are held by the RT&As and the investor gets account statements. The investor never receives any physical unit or a certificate as is the case with company deposits.
An investor can hold mutual fund units in the same demat account through which he/she buys & sells shares. Conversion of mutual funds units into demat form requires you to submit a conversion request form. This is available with your broker (like Zerodha or ICICI Direct) or depository (NSDL or CDSL). Then you can do all your mutual fund transactions from the broker account itself.
Pros of demat (mutual funds)
- An immediate advantage is the tracking of all capital market investments in a single statement. This includes shares, bonds and mutual funds.
- Units can be freely transferred to the accounts of nominees or legal heirs
Cons of demat (mutual funds)
- The average annual demat charge is ₹300
- Every transaction might have a brokerage involved which can add up to a lot. This generally ranges from 0.05% to 0.10% per transaction
- Complaints will have to be routed through the broker or exchanges as against being filing grievances with RTAs & AMCs directly. This makes complaint resolution complex.
- You cannot have multiple folios. You also cannot use features like systematic withdrawal or systematic transfer and daily, weekly or fortnightly dividends.
- Schemes of not all fund houses are available on exchange platforms
In my view, with online platforms coming up with powerful dashboards, the issue of consolidated viewing of portfolios is a non-issue.
Most of these platforms offer such consolidation free of cost.
Digital KYC Process
I don’t like paperwork.
This makes a 100% online KYC a major blessing. And to a million others who have missed out on the financial inclusion train because of inefficiencies led by a mountain of paperwork.
What is KYC?
KYC means “know your customer”. The KYC is a Securities & Exchange Board of India (SEBI) process for verification of investors. It includes providing information of the financial status, occupation and other demographic information in the application form which is verified against the original document. KYC compliance is mandatory when opening a bank account, opening a demat account and investing in a mutual fund.
There are three requirements when it comes to KYC verification.
- Verification of your identity (done through standard identity proofs)
- Verification of your address (achieved through standard address proofs)
- Proof that you are alive needs to be verified (achieved through In Person Verification or IPV)
The documents used in KYC verification include –
- Standard Identity Proofs
- PAN Card
- Voter’s Identity Card
- Driving License
- Photo identity proof of Central or State government
- Ration card with photograph
- Letter from a recognized public authority or public servant
- Bank Pass Book bearing photograph
- Employee identity card of a listed company or public sector company
- Identity card of University or board of education like ISC, CBSE, etc.
- Standard Address Proofs
- Voter’s Identity Card
- Driving License
- Electricity Bill, Telephone bill including mobile, landline, wireless, etc type of connections, not more than 6 months old
- Bank Account Statement
- Consumer Gas connection card or Gas Bill
- Letter from any recognized public authority or public servant
- Credit Card Statement
- House Purchase deed
- Lease agreement along with last 3 months rent receipt
- Employer’s certificate for residence proof
In Person Verification refers to a physical process where the investor meets an authorized representative in person. This authorized representative can be your bank official or mutual fund distribution agent. Infact, you too can visit your nearest mutual fund branch and get yourself KYC verified.
Technological improvements in KYC process
Fintech developments have improved the speed and efficiency of KYC verification. Aadhaar became the catalyst which allowed fintech organizations to ping the UIDAI system and verify the identity and address of the user. The fintech process solved the identity and address verification part with UIDAI integration.
The last leg (“In Person Verification” in the physical world) is solved using video KYC. Fintech organizations do this using a mobile app. The distributor or user downloads a mobile app, goes through a defined workflow, takes a quick 5 second video of oneself. This is enough proof that the user exists and is alive – and acceptable as part of KYC
To sum up, the new-age KYC process aided by:
- Identity verification – Aadhaar via UIDAI integration
- Address verification – Aadhaar via UIDAI integration
- User verification – video via mobile app
I was KYC verified while opening my bank account. Why to do KYC once again for investing in mutual funds or to start an SIP?
This is a common question and a rather fair one.
The plain answer here is that there is no centralized KYC agency. This means no single database is utilised by different participating financial institutions for KYC purpose.
Aadhaar was supposed to act as that one centralized repository. However that workflow has been going through some scrutiny in the wake of institutions like Airtel Payments Bank abusing the eKYC process.
Also, there is the legality aspect.
Let’s take PayTM as an example here.
PayTM, PayTM Payments Bank, PayTM Mall and PayTM Money are separate legal entities. They operate their own respective business which deal with payments, banking, ecommerce and financial products.
While they have common shareholders, it is no reason for these companies to act as one. Each of these companies have to act in compliance of the respective regulation that governs them. It is possible that each entity has a different KYC requirement and hence the KYC of one entity cannot be duplicated for another.
Now PayTM group might be working diligently on creating iron walls between their businesses but it will be fool-hardy to believe every now and then, some player will not abuse it.
regulations around KYC for Mutual Funds
1. As part of one’s KYC, the regulations required that every mutual investor has to provide an identification proof and address proof. The options are for KYC submission are:
- Submit directly to the mutual fund company (AMC) or
- Submit to the RT&A like CAMS or Karvy or
- Provide the documents via distributors like ETMONEY, PayTM Money, FundsIndia etc.
2. The pre-fintech era was all physical. Investors had to submit self-attested copies of the KYC documents. However fintech firms were able to successfully replicate all aspects of the physical KYC process into the digital form with the use of Aadhaar.
In October 2018, the Supreme Court asked private entities to stop insisting on Aadhaar details from customers. This has an impact on the mutual fund onboarding process. Under the e-KYC process, investment is restricted to ₹50,000 in a financial year. if an investor wants to invest more than ₹50,000 in a mutual fund scheme in a financial year, he or she must do a full KYC procedure.
How to complete your KYC online?
Before doing anything, you need to check if you are Investment Ready.
Step 1 : Enter your 10-digit PAN Card number at the directed location
For purposes of illustration, I am using the PayTM app screenshots from an article on the KYC process by the author of Freefincal.com (thanks!)
The response from the app is almost immediate. In a second or two, you will know if you are investment ready or not. If the app says that you are Investment Ready, it means that your KYC is already available and valid as per the records with one of the KYC registration agencies (KRA) in the country.
How to check your KYC online?
There are five agencies that offer the KYC services in India. These are CVL, NSE, NSDL, CAMS and KARVY.
I use CVL KRA for checking my KYC status, download the KYC forms and also undergo KYC KRA verification. To check your KYC status –
- Go to https://www.cvlkra.com/kycpaninquiry.aspx
- Enter your PAN number
- Enter the captcha (the 5 digit code that’s to the bottom of the form)
The result will show you all the agencies and the one from where the KYC was done.
The data shows that my KYC is registered. It further shows –
- My KYC was first done on 18-08-2011
- It was last modified on 20-03-2015 (when I submitted an application for an address change)
- IPV Flag = Y. This means that an In Person Verification was done for me. This is the process that is being substituted with a video KYC by fintechs.
When you are already Investment Ready
If you are Investment Ready (like I am from the image above), you only need to submit the following details –
- Bank Account Details
- Communication Details
- Nominee & FATCA declarations
When you are NOT Investment Ready
The below steps are only for users who are NOT investment ready
If the records say that you are NOT Investment ready, we need to do your online KYC. The eKYC is a simple seven step process. It can be completed in less than 10 minutes.
Step 2 : Enter and Upload your PAN Card
Your PAN (Permanent Account Number) Card is a 10 character number allotted by the Income Tax Department. The syntax of the PAN Card is 5 alphabets, then 4 numbers and then 1 more alphabet. For example – ABCDE1234F. A good check here is that the fifth character of the PAN card will be first character from your last name in case of individuals or the first character from your company name.
Once you click on the Upload button, the app will pop up a small window and seek your permission to access your device’s photos and media files. Afterall, the PAN card photograph will be in your device storage as a photo file. Once you give that permission, the app shows you the folder. And you can locate the relevant file and upload the photograph.
An alternate approach used by other investing apps is to simply seek your permission to activate your device’s camera function. This way you can simply click a picture of your PAN card. This is the method I used when I setup my investment account with ETMONEY. When using this mode, do ensure that the picture is clicked properly without any blurs. Also ensure the lighting is adequate to read all details.
Step 3 : Enter your personal details accurately for verification purposes
This step requires you to enter your full name, date of birth, gender, marital status and occupation.
Please ensure that the name and date of birth on the online application form matches with the PAN Card. If it is not a 100% match, your application will be rejected by the operations team of the investing platform.
In the near future, I expect this work to be done programmatically by using OCRs (optical character readers)
With regards to the name, a special note to users with initials in their name. Often users displace the position where the initial comes in. This is because in some official documents the initials are in the beginning of the name while in other documents, it might be at the end. For all purposes, the name in the form should match the name in the PAN card.
Step 4 : Signatures
Signatures might seem like an oddball process in a digital workflow. Afterall this is an age where we rarely write a cheque and conduct our business with banking mobile apps.
Unfortunately things are taking more time to evolve on this front and the regulators still require you to sign on a piece of paper for the purposes of KYC and account opening. For sometime, Aadhaar based verification helped but this area is still evolving.
Do ensure that you sign on a clean, white piece of paper & upload as directed. Kindly use a blue or black pen with a thick nib so that the signature is clearly visible
Step 5 : Video
The video part of the KYC is an excellent innovation that replaces the In-Person Verification requirement. While taking the video, please ensure that you face the light source so that your face is visible and not dark.
Step 6 : Address
Upload an address proof where directed.
The address Proof include –
- Aadhaar Card (front & back)
- Passport (two pages in front & back)
- Latest Telephone Bill (landline / mobile)
- Latest Electricity Bill
- Recent Bank Passbook / Statement
- Voter ID
Step 7 : Nominee and other declarations
Complete rest of form. It is advisable to add nominee details at this stage. A later declaration of nominee will require you to download the form from the AMC website, print it & courier it to the CAMS & Karvy office
What is FATCA?
FATCA stands for the Foreign Account Tax Compliance Act. This legislation was introduced by the United States Department of Treasury and United States Internal Revenue Service. This helps counter tax evasion in the United States. FATCA aims to encourage better tax compliance by preventing US citizens from using banks and other financial organisations outside the United States to avoid taxation on their income and assets.
A number of countries has signed the inter-governmental agreements (IGAs) relating to FATCA compliance with the United States government. India signed the IGA on July 9, 2015 with the law taking effect from 30 September 2015 in India. The Indian agreement promotes mutual information sharing. This means the United States will also share financial information on Indian residents who have investments in the United States
Step 8 : Bank account details
The final step requires you to add your bank account details including your bank IFSC code. The IFSC code is a 11 character number e.g. ICIC0000123. The IFSC code is available in the bank statement PDF that gets emailed to you each month.
The bank details are very important. Redemption proceeds aresent to your registered bank account only and not to any other account. You can always change the bank or bank account at a later stage with the necessary proofs.
As a part of the onboarding process, you will also need to upload a cancelled cheque or the latest bank account statement. Do ensure that the cancelled cheque has your name printed on it to avoid rejection. When uploading the bank statement, make sure that the PDF is not password protected
It takes approximately 3 to 4 working days for the investing platform to verify your details. Fintechs have crunched the process quite a bit now. For example – some fintechs are using a bank verification API to quickly verify the bank details which enhances the user experience during onboarding.
And that’s it. This is the KYC process.
Once the KYC is completed, you receive a notification from the investing platform. And you are now investment ready to buy mutual funds.
Additional Resources You Might Like
Here are some articles you might like:
- Rakesh Jhunjhunwala and his secrets to investing (Part 1)
- Complete SIP Investment Guide (over 8000 words compedium updated until 2020)
- The trillion dollar index fund story that John Bogle started in the 1970s
- Best SIP plans for long term investing
- 5 steps on choosing the right term insurance plan for yourself