The first investment in a new mutual fund folio is likely to be permitted only after KYC verification is completed by the KYC Registration Agencies (KRA) and the folio is marked as KYC-compliant.

Capital markets regulator the Securities and Exchange Board of India (Sebi), in a consultation paper released on Thursday, has proposed a standardised procedure for opening mutual fund folios and executing the first investment in a bid to eliminate discrepancies in KYC verification that have led to operational bottlenecks for both investors and Asset Management Companies (AMCs).

At present, new folios are opened after AMCs conduct internal KYC checks and simultaneously forward documents to KYC Registration Agencies (KRAs) for verification. However, Sebi noted that instances of KYC non-compliance arise when KRAs identify deficiencies, resulting in folios being temporarily marked as non-compliant.

This has led to multiple issues: investors are unable to transact or redeem investments until compliance is completed and AMCs face difficulties in communicating with investors or crediting redemption proceeds and dividends due to incorrect or incomplete details.

Under the proposed standardised process, Sebi has said folios will be created only after AMCs receive account opening documents and perform verifications according to the regulator’s KYC norms. KYC verification must be completed by the KRA before any first investment can be executed. Investors will receive status updates at each stage of the KYC process through their registered email and mobile numbers.

The regulator has further directed AMCs, KRAs and intermediaries to align their internal systems and workflows with the proposed framework.

Sebi has invited public comments on the proposal until November 14, 2025.

Sebi’s move comes at a time when mutual fund folios are seeing a steady rise each month amid heightened retail investor interest. According to Amfi data, total mutual fund folios as of September 2025 stood at 25.19 crore compared with 24.89 crore in August 2025 and 21.05 crore in September 2024.

A folio has a unique identification number assigned to each investor’s account within a mutual fund scheme. An investor can have more than one mutual fund folio, either across different fund houses or even with the same fund house.