An ID to confuse the MF investor

There is a sour acronym soup brewing in the financial markets. After Sebi’s investor identification number — MAFIN, Amfi has put its broth to boil with MIN, a number that investors will have to quote while making mutual fund investments of more than Rs 50,000.

At this rate, the next may be the insurance industry coming up with another identification scheme ending with ‘-IN’. Forget the prevention of proliferation of nuclear weapons, somebody should check the proliferation of identification numbers.

All the financial audit trail can be accomplished by using the permanent account number (PAN). Then, what is the point of having multiple identification numbers that could turn out to be a nightmare in terms of data extraction or issues related to data security?

“In mature systems, it is advisable to have a single identification number or code for an individual to help maintain integrity and availability of data to reduce overheads. For improved information security, it is important to have one piece of information compared to discrete pieces,” says Raghu Raman, CEO, Mahindra Special Services Group.

Ideally, mutual funds do not even need to have the PAN as they never take investments in cash. Mutual fund investments can be made by cheques. The fact that an investor has a cheque means that the investor has a bank account. This means that due diligence has been taken while making an individual a customer of the bank.

In case a bank customer is a front for someone and is investing it into a mutual fund, the extra-ordinary cash transaction can always be spotted by the bank and reported to the tax guys. The bank also makes sure that the identity of the customer is genuine. It takes into consideration his PAN and other identification details that include an address proof in the form a passport or an electricity or telephone bill. In many cases a passport is insisted as it is not so easy to forge a passport. Individuals do not mind citing the PAN on any required document as it is considered like a social security number.

The mutual fund industry was against the introduction of the MIN as it will only make the investors process of investing more complicated. The asset management companies will now be paying for the allocation of MIN, and thus fund houses are not happy about taking this unnecessary additional expense on their balance sheet. Mutual funds always insist on the PAN when investors invest more than Rs 50,000 in one particular scheme and they feel that there was no need to have a separate number as the PAN number is supposed to be universal.

In the interest of customer privacy and data security, it is better to have one identification number than many. It is even better when that number is in custody with a trusted authority like the income tax department.