Delay on the part of CDSL Ventures to complete the 'know-your-client' process for mutual funds will derail the tax planning of many investors looking to save taxes by investing in equity linked savings scheme, or ELSS. With just 16 days for the tax season to end, CDSL Ventures is staring at a huge pile of 'know your-client' (KYC) submissions waiting to be cleared.

According to three wealth managers whom ET contacted, CDSL Ventures is taking 40-45 days to complete the KYC process. Without KYC-compliance , investors cannot make new or additional mutual fund investments, or switch investment plans. "Delay in getting the KYC clearance is creating inconvenience to investors. If they do not submit their KYC application through designated collection points (point of service) or mutual fund houses, they'll have to wait for a long time to become KYC compliant," said Rajesh Krishnamoorthy, managing director , Ifast Financials.

Designated collection points and CDSL-appointed mutual fund houses "have been empowered to give 'KYC acknowledgement letters' with which investors can make their first transaction (investing in a fund)", Mr Krishnamoorthy said. "However, fund houses do not allow investors to redeem or switch plans using the temporary KYC acknowledgement letter ," he said. Capital market regulator Sebi has directed asset management companies to ensure that even investors making investments of less than Rs 50,000 adhere to KYC norms.

The regulator wants fund houses to verify the identity and address of the investor, financial status (including assessment of bank statements ), occupation and such other information that will establish the character of the investor. The fund industry has appointed CDSL Ventures to maintain the database on KYC-compliant investors. CVL will also act as an additional counter to accept and verify documents and provide 'KYC-acknowledgement' .

"We're doing our level best to expedite the KYC process. Of the two crore-odd unique fund investment folios, only 27 lakh are KYC compliant. People have just started giving us the details; this is causing a bunching-up in the system," said Cyrus Khambata, CEO, CDSL Ventures.

"Another problem is incomplete submissions; we've to go back and forth to get more information from the investors. We finish the KYC process of completed submissions in two days; the investor will get a confirmation regarding the same in five days after submission," Mr Khambata said. Fund houses are finding it difficult to draw information from investors , who are not comfortable providing financial details. Rich investors in smaller cities, who make several small investments in the names of their close relatives , are worried that these details will be used for tax purposes .

This, at times, deters investors from investing in mutual funds. Fund houses mobilising money through new fund offers are the worst affected, sources said. In February, ELSS schemes saw inflows of . 348 crore.