Sucheta Dalal :MIN: A number to identify MF investors or harass them?
Sucheta Dalal

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MIN: A number to identify MF investors or harass them?  

Jan 8, 2007



Mutual fund investors are still smarting over their New Year gift, in the form of immobilised accounts pending the acquisition of MIN numbers. A flurry of angry emails have questioned the need for separate Mutual Fund Identification Numbers (MIN) when PAN numbers (issued by the Tax Department) are already mandatory and banks have recently forced every account holder to ensure strict compliance with Know Your Customer (KYC) rules for bank accounts as well as Depository Accounts.

The Association of Mutual Funds of India (AMFI), which is issuing the MIN numbers, is the butt of investors’ fury. Some question AMFI’s authority to issue numbers, but most of the anger is directed at the government for repeatedly burdening the tax-paying and law-abiding people with a mindless increase in paperwork, especially when there is no sign of any reduction in the cash economy.

But AMFI is not to blame; in fact it has worked at reducing the pain of compliance. AMFI chairman A.P. Kurien explains that the Money Laundering Act obligated Asset Management Companies (AMCs) of all mutual funds to follow “enhanced Know Your Client (KYC) requirements” from January 1, 2007. AMFI made representations to the government pointing out that mutual fund investment is routed through the banking system, which already enforces KYC verification while opening accounts. But it was told that each AMC had no option but to implement ‘enhanced KYC’ regulation because it was “the law of the land”.

Clearly, those who drafted the Money Laundering laws did not bother to examine it for repetitive and meaningless paper work that it would generate or the additional costs imposed on the mutual fund industry. Why bother to ask various government departments to share information or create a structure for such sharing when it is far easier to order investors to stand in queues and submit the information all over again under threat of freezing their accounts?

Meanwhile, it never ceases to amaze me that the same government, which has turned super-stringent about KYC norms for its own citizens, rushes to defend and justify completely non-transparent capital market investment by foreigners through Participatory Notes (PNs), which includes large chunks of tax-evaded Indian money that returns to India via foreign tax havens.

Left with no option but to fall in line, AMFI worked on ways to minimise the harassment to investors by creating a single database for submission of identification details and verification procedures by issuing a single MIN number that would be applicable across all mutual fund investments. It facilitated the process by mandating CDSL Ventures Limited (CVL) to create the database for issuing MIN numbers and the capital market regulator has presumably verified the systems to ensure that problems that it detected in the CDSL depository do not recur in this database.

Probably because AMFI was hoping to avoid another needless identification number, involving large infrastructure costs, the process seems to have been delayed until the end of 2006. Investors were notified about the need for to obtain MIN numbers only on December 21, 2006, giving them less than a week before it became applicable on January 1, 2007 under the Money Laundering Act.

But Kurien says that AMFI is working round the clock to avoid bottlenecks by increasing the number of Point of Service (POS) agents authorised to issue MIN numbers. It is negotiating with banks, Depository Participants and Registrars to act as POS agents so that the number of issuing centres can be rapidly expanded from the 140 that existed on Friday morning.

The MIN system requires the submission of four documents — photo, photo identity, age and address proof and does not mandate personal attendance. According to Kurien, even the collection of personal financial information has been restricted to ticking on check boxes. While the MIN will be issued across the counter on submission of documents, there will be a one-time process when the data is sent for a second verification and entry into CVL’s database. This would take around four days, although CVL has reserved the right to seek corrections for 21 days.

In this context, some investors seem to be under the mistaken impression that “CVL will take four days to confirm MIN numbers in case of every transaction” causing investments to be locked-in for that period. AMFI is emphatic that there will be no recurring delay, since databases of Mutual funds and CVL are linked to ensure instant verification.

Once issued, Kurien says, the MIN will be useful in several other ways. For instance, investors wanting to change their postal address, can do so through the POS agents authorised to issue MIN, without having to write to every mutual fund in which they are invested. Over time, MIN numbers could provide the first accurate information on India’s investor population, since it is issued to individuals. For instance the mutual fund industry has 2.56 crore folios, but the number of investors is bound to be significantly smaller.

AMFI has started out by mandating MIN for transactions above Rs 50,000. This will soon be extended to all transactions and investors would be foolish to follow the advice of some newspapers to split their investments to avoid MIN. It makes far better sense to get it over with.

The bad news is that this is by no means the last time that people will be asked to submit identity proof and other data to government agencies. The Securities and Exchange Board of India is set to revive biometrics based Unique Identification Numbers (known as MAPIN earlier), followed by the biometric based National Identification Number that will be akin to the US Social Security number.

It is about time the Union government sets up a high powered, technically qualified Group to look at making e-governance more meaningful by networking between various government departments and across Ministries to optimise information gathering process. This must aim to avoid repeated submission of personal information, which not only harasses people, but also is liable to serious breach of security and privacy.

http://www.indianexpress.com/story/20352.html


-- Sucheta Dalal



 



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