Can mutual funds solve their KYC cost problem in-house?

Subscribe to enjoy similar stories.MUMBAI: The mutual fund industry may be closing in on a structural fix to a long-running cost problem that weighs on asset manager profitability and makes small investments less viable.The industry is working on creating its own KYC Registration Agency (KRA) through Mutual Fund Utility (MFU), a move that could cut know-your-customer (KYC) expenses by nearly half, according to four people aware of the discussions.If implemented, the shift would directly reduce fixed onboarding costs that AMCs must pay for every new investor, regardless of investment size, these people said.Currently, asset management companies (AMCs) pay around ₹35 to KRA agencies for every new investor onboarded. That cost applies even to very small investments.Take a ₹500 monthly systematic investment plan.

An AMC earns roughly 0.3% annually on that investment, excluding distributor payouts and operating expenses. That works out to about ₹18 a year.

At that rate, it takes nearly two years for the AMC to recover just the fixed KYC cost.These fixed costs have become a structural pain point for asset managers, particularly as regulations require schemes to reduce total expense ratios as assets grow. While variable costs such as registrar and transfer agent fees and distributor commissions typically decline with scale, KYC and depository charges do not.That mismatch has weighed on profitability across the industry, especially in smaller ticket-size investments where fixed onboarding costs form a disproportionately large share of revenue, according to experts.MFU, a non-profit organization funded by asset management companies and formed under the Association of Mutual Funds in India (Amfi) in 2015, is in the process of