All you need to know about KYC

If you are a customer, you must have been asked by a bank or financial institution, to submit your Know Your Customer KYC Form before making any investment with them. Ever wondered what is KYC and why is it so important?

Here, we will mention everything you wanted to know about KYC.

What is KYC?

KYC stands for ‘Know Your Customer’ and is a mandatory, legal and regulatory requirement for the purpose of identifying and verifying the details of a customer, by using reliable and independent information/documents.

It is a kind of formality that allows a bank/financial institution to identify and validate its customers. Know Your Customer (KYC) formalities are regarded as an effective tool to counter the menace of illegal activities such as money laundering.  The Know Your Customer practices help a great deal to prevent unholy practices in investments or banking transactions and thus, they protect the concern financial institution from possible losses and frauds resulting from such illegal transactions.

The Know Your Customer (KYC) practices are important for a bank/financial institution as they allow it to:

• Establish the identity of a customer accurately
• Assess the very nature of the activities of a customer, check whether the source of his funds is a legitimate one
• Assess if there is any risk of money laundering attached to the customer

How are the financial institutions obliged to ensure KYC compliance?

The Know Your Customer Checklist incorporates some key elements mentioned in the directive issued by the RBI in 2004.  These elements include customer acceptance policy, customer identification procedures, risk management and proper monitoring of transactions.

As per the regulatory requirement mentioned in the RBI guideline on Know Your Customer (KYC) standards and Anti Money Laundering  (AML) measures, dated 29th November 2004, all banks/financial institutions are required to prepare a comprehensive policy framework that covers the aspects of Anti Money Laundering measures and KYC Standards.

As per the legal requirement mentioned in the Prevention of Money Laundering Act, 2002 (PMLA) all banks/financial institutions are required to ensure that certain minimum KYC and AML standards laid down by the PMLA acts and rules.

As a result, every Bank/financial institution/intermediary (including mutual fund distributors) needs to follow Know Your Customer practices while dealing with any customer. As a customer, you need to fill up the Know Your Customer KYC Form when-

• Investing in mutual funds
• Opening a bank account
• Opening any subsequent bank account
• Asking for financial planning services through any registered board
• Applying for a credit card or loan
• If any bank/financial institution does not have sufficient documents to identify/verify you.
• In case there are any changes in signatories, beneficial owners, etc
• Any additional information required

Why is KYC necessary if you want to invest in mutual funds?

One of the key objectives of Know Your Customer (KYC) is to make sure that the investments/deposits are made in the names of real persons only; not in the names of fictitious ones. Therefore, all mutual fund investors are mandated to adhere to a KRA or KYC Registration Agency, which is an entity registered to SEBI. A KRA keeps all the information related to investors in a single database (based on the Know Your Customer KYC Form filled up by a customer) which can be accessed by all fund houses/intermediaries. NSE, KDMS, and CAMS are some of the KRAs most investors are familiar with.

AMFI and SEBI rules of 2012 made Know Your Customer mandatory for mutual funds investments. But you need to do the KYC-compliance only once before mutual fund companies, distributors, brokerages or other intermediaries. Before 2012, it was mandatory for you to submit a PAN copy if your investments exceeded Rs 50,000 in a particular financial year. However, it is not a mandatory requirement now.

How to check if you are KYC-compliant or not?

Mutual fund investments are very popular these days as it enhances a faster growth of your wealth if invested wisely. Filling of the Know Your Customer (KYC) Form is the first decisive step towards your mutual fund investment. Before investing, you should check your KYC status to know if you are KYC-compliant already. Now, you can do this online through a few easy steps. You can visit the official CDSL website and check your Know Your Customer (KYC) status by entering your PAN number. If you are KYC-compliant already, no need to do the KYC steps again.

In recent years, SEBI has introduced a common procedure called ‘Know Your Client’ to ensure consistency and uniformity across the SEBI-registered intermediaries. This has made it quite easier for Mutual Fund Companies, Portfolio Managers, Stock Brokers, and Venture Capital Funds to check and control duplication of Know Your Customer (KYC) related documents.

Documents required for KYC compliance

If you go through the Know Your Customer SBI Form, you will find out that you need to submit the below-mentioned documents along with one passport size photograph and the Know Your Client application form.

1. Identity proof

A copy of any document from-

• Driving license
• PAN Card
• Adhaar  Card
• Voter ID
• Passport
• Bank passbook with photo

2. Address proof

A copy of any document from-

• Recent electricity bill
• Recent landline/mobile bill
• Voter ID
• Passport
• Bank passbook
• Driving license
• Ration card
• Adhaar Card
• Demat account statement
• Rent agreement

KYC procedures available

The CDSL Ventures Limited has been nominated and authorized by the entire mutual fund industry to supervise the Know Your Customer procedure. An investor can complete the formalities either online or offline.

a) Procedure to submit Know Your Customer (KYC) details Online

1. Visit the official website of KRA and Create your own account by filling in the required personal details
2. Provide your Aadhaar number. Also, provide your registered mobile number and verify the same through OTP
3. Upload the self-attested copy of your e-Adhaar and accept the declaration terms for eKYC.

b) Procedure to submit Know Your Customer (KYC)  details Offline

1. Visit the official CDSL website to download the KYC application form. Fill in the required details
2. Submit the signed form to the authorities or intermediaries through whom you are investing in mutual funds
3. Attach the required documents and photographs along with the application form.

c) Aadhar-based KYC

You may even opt for Adhar-based KYC if you have got your Adhaar card. You may ask a representative from your chosen agency/fund house/distributor/broker to visit you to collect a copy of your Adhaar. He will then scan your fingertips and link it to the official Adhaar Database. Thus, he can validate your Know Your Customer details before moving on with your investment.

Evolution of e-KYC  

1. When borrowers applying for a personal loan it was difficult until a few years ago. Standing on long bank lines, filling out endless forms, and waiting weeks, if not months, for a response or status from the bank are now a thing of the past. 
2. The lenders offer advanced technology and digitalization in the banking sector, the entire process of applying for a personal loan has become much more streamlined and straightforward. 
3. The paperless eKYC process has sped up the loan approval and disbursement process because the KYC procedure, which used to take weeks, now just takes a few minutes. 

What are the advantages of e-KYC when applying for online cash loans? 

• Physical documentation will not be required for loan approval. 
• e-KYC expedites the processing of the personal loan and quick cash loan applications, allowing for faster loan disbursement. 
• The verification process takes a few minutes for loan approval. As a result, you'll be able to secure rapid loan approvals. 
• You can also use eKYC to link your Aadhaar Card to verify your identification with just one ID. 

Paperless e-KYC has simplified the personal loan application process and cut the time it takes to approve a loan to just a few days. 

Do your eKYC with Afinoz

For completing your Know Your Customer (KYC) requirements offline, you may need to submit the documents physically at a KRA or to send them through the post. Such lengthy procedures may take at least 7 days to complete.

With the efficient and reliable platform of Afinoz, you can complete your eKYC formalities within minutes. At Afinoz, we use all the modern security tools and ensure the utmost privacy of your data and documents. Be KYC-compliant with Afinoz and carry out your financial transactions with utmost ease. Our services are available to you absolutely free of cost. If you have any queries, feel free to call us at 0120-411-0376.