Why Majority Of SMEs In India Are NOT SEBI KYC Enabled?


There are more than 633 lakh registered SMEs in India, but not even six percent of them participate in the securities market. Why? Due to the complexity of SEBI KYC compliance plus the lack of awareness.

In today’s KOFFi break, let’s try to understand how SMEs in India unknowingly bear massive opportunity loss due to not embracing SEBI KYC compliances. Why is that the case in India? And who is responsible for this? 

Understanding SEBl KYC and its Impact on SMEs

SEBI KYC  – it isn’t merely a regulatory requirement. For SMEs in India, it’s a gateway for accessing diverse financial securities markets, from equity to debt, which can transform their financial management strategies.

Yet, the complexity of the current SEBI KYC compliances and lack of awareness of the non-individual entities (SMEs), make the process daunting, and often, discouraging. 

Most of us confused SEBI KYC with RBI KYC but they are different. Both regulatory compliance have different purposes, let try to understand by this table: 




Regulatory Body

SEBI (Securities and Exchange Board of India)

RBI (Reserve Bank of India)


SEBI KYC is primarily used for investments in securities markets, such as mutual funds, stocks, bonds, and other financial instruments.

RBI KYC is used for banking and non-banking financial services, including opening bank accounts, taking loans, making deposits, and other banking-related activities.

Entities Involved

It involved brokers, mutual fund companies, portfolio managers, and other market intermediaries.

It involved banks, non-banking financial companies (NBFCs), payment banks, and other financial institutions regulated by the RBI.

Let’s try to Understand What Challenges are there for SMEs

Indian mutual fund markets are always dominated by individual players, with about 91% share in total mutual funds accounts.

On the other side, Non-Individuals players have only a 0.6% share in total mutual fund accounts. That’s why there is always bias for the individual player in the mutual fund industry. 

Hence, non-individual players are always ignored in the market due to their minimal share. 

Thus, in current times there is too much innovation happening to make individual participation more convenient and efficient. Like, digitalization of SEBI KYC of individuals, where individuals can complete their SEBI KYC within a few minutes while sitting at home.

But when it comes to SEBI KYC compliance for non-individuals, The current process is still too old school. 

Outdated SEBI KYC Compliance for SMEs

Businesses need to do all necessary compliance physically from submitting various physical documents, and various application forms, to doing offline verification in different financial intermediaries.

Plus, there is no transparency maintained in the SEBI KYC process. There are no clear requirements stated anywhere that can vary from one financial institution to another.

As we can see there are hundreds of fintech companies for individuals to provide these conveniences.

While non-individuals don’t get any convenience provided by financial institutions or fintech companies. At a time when digital solutions are streamlining the process globally, the SEBI KYC process for SMEs remains stubbornly traditional. 

The Huge Opportunity Cost for SMEs

But, why are even SMEs concerned about SEBI KYC compliance to participate in securities markets, where volatility is a huge risk for them? 

Here is where a lack of awareness comes into play. Due to a lack of awareness businesses in India don’t know about other instruments than traditional banking options for managing their business finances.  

That’s why businesses in India park more than $200 billion in short-term FDs even though it’s not ideal to fund parking.

Not knowing about other more efficient options like:

  • Debt-oriented funds – liquid funds, money market funds, gilt funds, etc.
  • Hybrid funds – Arbitrage funds. 

This makes them inefficient in cash manage and has to bear massive opportunity costs. 

All the above options are ideal for fund parking and managing business finances with very little risk. That’s why these funds are also called fixed-income funds. Where businesses can make up to 7% p.a. returns on their capital which gives a boost to their revenue bottom line. 

Also, these funds are not new to the businesses. Big corporate houses like Infosys, Reliance, TCS, and so many others are already utilising these market instruments.    

Assets Owned by Corporates in Mutual Funds

Of the total assets owned by 0.6% of non-individual players in mutual funds, 95% of assets are directly owned by only corporate’s. 

Big corporations have unlimited resources and manpower like educated CFOs to give the right guidance and manage business finances, and that’s why they are not behind in taking benefits of these instruments. 

But when it comes to SMEs, the majority of them are operating with very limited resources and manpower. 

Hence, prioritising immediate operational needs makes more sense for them than any other regulatory compliance because outsourcing this compliance to manage also costs good money. 

And that’s something needs to change for SMEs in India. 

What Needs to be Changed? 

SMEs need to take SEBI KYC compliance seriously to not lose massive opportunity costs due to just one regulatory compliance. And this never will be done if Indian financial institutions and Fintechs won’t take businesses seriously.

Making SEBI KYC compliance simpler and faster and digitising for businesses will not only be beneficial for Indian SMEs but it is also beneficial for the overall securities market and the Indian economy. 

Even though individual players are dominant in the mutual fund industry, the average ticket size of retail players is just Rs. 84,890. 

While the average ticket size of businesses is Rs 1.6 crore. 

So, just imagine if SEBI KYC compliances for non-individuals get simpler, faster, and digitised the barrier to entry becomes negligible for businesses and that’s give a huge boost to the mutual fund industry getting along with the Indian economy. 

Final Thoughts:

For a long time, businesses are ignored and the securities market gets biased toward the individual players.

But this is the time when we need to bring a new revolution for SMEs to give them better options rather than traditional ones by minimising their barrier to entry and making the whole SEBI KYC compliance simpler, faster, and digitised which can open up the gate for endless opportunities for them and the country. 

Did you find this information valuable? Share this blog with someone whose SME business is still not SEBI KYC enabled. Help them to make informed financial decisions just as you do!

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About the Author

Picture of Shantanu Bante

Shantanu Bante

Shantanu is a management student with a strong interest in fintech. He enjoys creating valuable and insightful content to increase financial awareness. Currently, he is working as a Marketing Manager at KOFFi.

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