PAN exemption
Also written PAN exempt investments · PEKRN · PAN Exempt KYC Reference Number · PAN exemptions
The relaxation that lets small mutual fund investors invest without a PAN — up to a composite Rs 50,000 a year in micro-SIPs and lump sums — by quoting a PAN Exempt KYC Reference Number from a KRA.
In plain language
The general rule is that providing PAN is compulsory for all mutual fund investments. The exemption exists so that the rule does not shut out small savers who do not have a PAN.
It does not exempt anyone from KYC. The investor still completes KYC with a SEBI-registered KRA, using another photo identity document such as an Aadhaar card or Voter ID. In place of the PAN, the KRA issues a PAN Exempt KYC Reference Number (PEKRN), which the investor quotes on the application along with a copy of the KRA's letter.
On the application form, the workbook lists "PAN/PEKRN details" among the mandatory fields. One of the two must be there.
How it works
Box 12.1 of the workbook sets out two kinds of exemption.
Limited by amount, for individuals, minors and sole-proprietary firms:
| Investment | Limit |
|---|---|
| Micro-SIP | Annual investment — 12-month rolling or April–March — not exceeding Rs 50,000 |
| Lump sum by a small investor | Up to Rs 50,000 per mutual fund per financial year |
| Both together | Rs 50,000 is a composite limit |
No threshold at all, for:
- investors residing in the state of Sikkim;
- UN entities and multilateral agencies exempt from paying taxes or filing tax returns in India;
- investments on behalf of Government undertakings.
The same Rs 50,000 number appears in several unrelated rules in the paper, and they must be kept apart. Cash investments are limited to Rs 50,000 per investor per mutual fund per financial year, as an umbrella limit with e-wallets. OTP-based eKYC using Aadhaar allows up to Rs 50,000 per annum per mutual fund. The PAN exemption is a third, separate limit.
The exemption is about investing. Chapter 14 states that PAN is compulsory for all redemption transactions, and Chapter 15 that investors must provide PAN in their folios to be able to redeem — the workbook does not reconcile this with PEKRN folios.
A worked example
Illustrative numbers.
Mr Yadav, a delivery rider without a PAN, completes KYC with a KRA using his Aadhaar card and receives a PEKRN. He starts a micro-SIP of Rs 3,000 a month in an equity scheme of one fund house.
Annual SIP = 3,000 × 12 = Rs 36,000
That is within Rs 50,000, so the SIP is accepted on the PEKRN.
In October he receives a festival bonus and wants to add a lump sum of Rs 20,000 in the same mutual fund in the same financial year.
| Amount | |
|---|---|
| Micro-SIP for the year | Rs 36,000 |
| Proposed lump sum | Rs 20,000 |
| Total | Rs 56,000 |
| Composite limit | Rs 50,000 |
| Headroom for a lump sum | Rs 14,000 |
Because Rs 50,000 is composite, the SIP and the lump sum are counted together. Without a PAN he can add at most Rs 14,000. To invest the full Rs 20,000 he needs a PAN.
His cousin in Gangtok, Sikkim, faces no such arithmetic. Investors residing in Sikkim are exempt from providing PAN with no threshold amount.
Why NISM asks about it
Chapter 12 (Investors in Mutual Funds) carries the exemption in Box 12.1 within section 12.4 on KYC norms, and its sample question asks for the composite PAN-exempt limit for micro-SIPs and lump sums — Rs 50,000, against Rs 10,000, Rs 25,000 and Rs 1,00,000. Chapter 14 (Financial Transactions) lists PAN/PEKRN among the mandatory application fields, and Chapter 13 (Banking Operations) sets the separate Rs 50,000 cash and e-wallet umbrella limit that is easy to confuse with it.
Common exam traps
- PAN exemption is not KYC exemption. KYC with a KRA is still required; PEKRN is issued by the KRA.
- Rs 50,000 is composite for micro-SIPs and lump sums together, not Rs 50,000 each.
- Only individuals, minors and sole-proprietary firms get the amount-limited exemption. A company or trust does not.
- Sikkim residents, tax-exempt UN and multilateral entities, and Government undertakings have no threshold.
- Three different Rs 50,000 rules: PAN exemption, cash plus e-wallet umbrella, and OTP-based eKYC. Read which one the question is about.
- Joint holders in a PAN-exempt case also submit alternative photo identity documents.
- The workbook is internally inconsistent on redemption: Chapter 12 permits PAN-exempt investment, while Chapters 14 and 15 say PAN is compulsory to redeem. If asked about redemption, those chapters' wording is what the paper states.
Where this is taught
Free preparation for NISM Series II-BRelated terms
- Central KYC RegistryThe Government's central digital store of KYC records for the whole financial sector, operated by CERSAI, which de-duplicates records and issues each client a unique KYC Identifier.
- E-walletsDigital wallets that may be used to buy mutual fund units within a Rs 50,000 umbrella limit shared with cash, and only with money loaded by cash, debit card or net banking — never credit card or cash back.
- KYC Registration AgencyA SEBI-created agency that holds an investor's verified KYC record centrally, so that one KYC completed with any securities market intermediary works with all the others.
- Officially valid documentsThe alternatives to Aadhaar accepted as identity evidence for KYC — driving licence, passport, voter ID and the NREGA job card — all of which the client supplies voluntarily.
- Systematic Investment PlanA facility to invest a constant amount into a scheme at regular intervals, which buys more units when the NAV is low and fewer when it is high and so averages the cost of acquisition down.
- Know Your CustomerThe identity and address check every investor must clear before a bank, broker or depository participant will open an account — mandatory under the Prevention of Money Laundering Act, 2002.
- PAN updationThe non-financial transaction by which an investor adds or corrects the PAN on a mutual fund folio, validated against the Income Tax database and required before any redemption can go through.
- TDS on dividendTax deducted at source on mutual fund dividend (IDCW) payouts — 10% for residents, exempt below Rs 5,000 a year, 20% for non-residents, and 20% wherever PAN is missing.
- Uniform KYC formatSEBI's rule that every registered intermediary uses the same KYC form and supporting documents — Part I of the account opening form built on CERSAI's templates, Part II left to the intermediary.
- Temporary ceasing of operationsUnder Rule 9(17) of the PML Rules, the temporary suspension of all transactions in an existing client's account for failing to submit PAN, its e-document or Form No. 60 by the notified date.
- Form 49AThe Income Tax form used to apply for a Permanent Account Number, submitted with proof of identity and proof of address, the entry point to every PAN-linked financial transaction.