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MFs fear slowdown in growth due to PAN rule
June, 14th 2007

In a bid to prevent a slowdown in investments in the mutual fund (MF) sector, the Association of Mutual Funds of India (Amfi) has mooted a proposal to market regulator Sebi that the July 2 deadline of making PAN card compulsory be staggered or introduced in phases.

This comes in the wake of concerns that adherence to the deadline may temporarily slow down the growth of assets and the spread of mutual funds across the country. The budget proposal to make PAN the sole identification number for all participants in the securities markets, including mutual funds, is to come into effect on July 2.

As per the proposal, investors investing any amount in MFs will have to henceforth produce proof of address and identity, in addition to the PAN card. Earlier, only investments of more than Rs 50,000 required such documentation.

Speaking to ET, Amfi chairman AP Kurien pointed out that while there is no denying the fact that PAN is mandatory, it needs to be implemented in a phased manner.

At the outset we are committed to using PAN. However, what we suggest is that initially it should be made mandatory for investments of over Rs 50,000. This stipulation could be in place for say six months. The proposed time span could then be used to speed up the process, educate the investor and aggressively increase the number of outlets processing PAN. Thereafter, we could reduce the cut-off level and make it mandatory for say investments of Rs 25,000 and more. Once again this may be extended for six months. This may be over a period of time brought down to Rs 5,000 and more, which could then be gradually brought down to zero, the AMFI chairman said.

Mr Kurien believes that such a process would take the load off the system and help in growing the investor base. We do not want to inconvenience the small investor in any way, he added. Reiterating this are MF officials who believe that investors subscribing to systematic investment plans for as low as Rs 50 are from the lower income group and most of them would not have PAN cards.

Says Pankaj Razdan, MD & CEO of ICICI Prudential Mutual, The move is welcome, but the deadline is too short, considering that only around 12% of the MF investors have PAN cards. It would be a big relief to the industry if this move is implemented in phases. Else, there could be a slowdown in inflows into mutual fund schemes.

Reliance Mutual Fund and ICICI Prudential Mutual Fund had recently launched the facility of micro-SIPs or systematic investment plans, where they reduced the minimum SIP amount to Rs 100 and Rs 50, respectively. Sources in the know also said that ministry of finance is examining a proposal mooted by AMFI whereby a bank account and PAN number may by itself be treated as fulfilling the mandatory KYC norms. 
Earlier, spurred by the capital market regulator Sebi, Amfi had introduced MIN (mutual fund Identification number) as a means for improving the know-your-client (KYC) norms. The number had sought to prevent money laundering but was scrapped by the finance ministry in the last budget. PAN was then made the sole identification number for all participants in the securities markets.

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