What is KYC- Why is it Important

“India suffered frauds worth Rs 4.92 trillion as of March 31, 2021-based on RBI data, published by Business Standard”

Back in 2002, the Reserve Bank of India introduced KYC or Know Your Customer regulations to know their customers. KYC is mandatory for any customer who is willing to connect with financial institutions or initiate financial transactions.

RBI made it mandatory for all the financial institutions to verify the details of the customers transacting with them. Customers are required to comply with the KYC procedure for verification, failing which, the customer may result in not being able to initiate transactions with their respective banks.

In this blog, we will explain what is KYC and why it is important for you to complete it.

What is KYC?

KYC or Know Your Customer is a process to identify and verify a customer. It is a mandatory process that is done at the time of opening a bank account and over a period of time.

KYC can be further understood by the following-

  • It was introduced by the Reserve Bank of India in 2002

  • It is called an antimony laundering process

  • KYC helps in knowing the customers

  • It aims to restrict money laundering in the financial market

  • RBI has made it mandatory for all financial institutions to strictly follow KYC procedures

  • KYC is mandatory for new and existing customers

  • Financial institutions need to periodically update KYC records

  • KYC helps in detecting frauds in customer accounts

Why is it Mandatory to Complete KYC?

RBI made it mandatory in 2004 for financial institutions to strictly implement KYC to know each and every customer. The reason behind the KYC implementation was the growing number of fraudulent activities in the financial market. With complete KYC, financial institutions will be able to know the background of their customers. Further, on the basis of the customers’ background, financial institutions can reject or approve their applications.

In addition to this, KYC is not restricted to prevent frauds or suspicious activities in the banking sector but it also safeguards online businesses and companies across the globe.

What are the Types of KYC Verification?

As per the KYC rules, it is important for new and existing customers to undergo the KYC verification process to open an account with financial institutions. There are two ways in which a customer can get KYC-verified-

  • In-Person Verification

In-Person KYC verification is required for customers who want to invest more in a specific fund every year. Here, the customer needs to visit the KYC centres to get the KYC-verification process done.

Also, a customer can get the in-person verification done by calling the KYC Registration Agency to complete the verification either at home or at the office. Besides, there are some fund houses that allow customers to get the verification done via a video call. For video verification, a customer is required to show his/her identity proof and address with a pin code.

It is to be noted that in-person verification allows a customer to invest more than Rs. 50,000 every year per fund.

  • Aadhaar based KYC verification

Aadhaar-based KYC verification is done through a customer’s Aadhaar card details. This type of KYC verification restricts one to invest till a particular amount, which is up to Rs. 50,000 every year per fund.

What are the Documents Required to Complete KYC Verification?

Following documents are required by individuals to get the KYC verification done-

FOR INDIVIDUALS –

List of Documents for Registration

  • Duly filled form with signatures

  • Self-attested Identity proof

List of Documents for Identity Proof

  • PAN card with Photograph

  • Aadhaar card/Passport/Driving License/Voter ID card

  • Identity cards issued by the Public Sector undertakings, Public Financial Institutions or Scheduled Commercial Banks

  • Identity card or a document with the applicant’s photo. The identity card can be issued by the Central/State department or its departments, Regulatory/Statutory Authorities

  • Self-attested address proof

  • Identity cards issued by College affiliated by Universities or Personal Bodies like ICWAI, ICSI, ICAI, Bar Council etc

List of documents for Address Proof

  • Ration Card/Voter ID Card/Passport/Driving License/Flat Maintenance bill/Insurance Copy/Registered Lease or Sale Agreement of Residence

  • Bank Account Statement/Passbook ( should not be older than 3 months)

  • Utility Bills (should not be older than 3 months)

  • Self Declaration Copy by the High Court or Supreme Court Judges (new address with PIN code)

  • Proof of Address issued by Multinational Foreign Bank, Managers of Scheduled Commercial Banks / Scheduled Co-operative Bank/ Notary Public/ Elected Representative to the Legislative Assembly/ Gazetted Officer / Parliament / Documents issued by any Government or Statutory Authority

  • Document with current address issued by Central / State Government and its Departments, Statutory / Regulatory Authorities. Scheduled Commercial Banks, Public Financial Institutions, Public Sector Undertakings, Colleges affiliated to Universities and Professional Bodies such as ICSI, ICWAI, ICAI, Bar Council etc

  • Current address in the name of the spouse

  • Passport size photograph

Non-individuals are required to submit the following documents over & above the Proof of Address and Proof of Identity-

FOR NON-INDIVIDUALS

Types of Entity

List of Documents

Partnership Firm

  • Copy of balance sheets for the last 2 financial years (to be submitted every year)

  • Certificate of registration (for registered partnership firms only)

  • Copy of partnership deed. Authorised signatories list with specimen signatures

  • Photograph, POA, POI, PAN of Partners.

Trust

  • Certificate of registration (for registered trust only).

  • Trust Copy of the balance sheets for the last 2 financial years (to be submitted every year)

  • Copy of Trust deed

  • List of trustees certified by managing trustees/CA

  • Photograph, POA, POI, PAN of Trustees

Corporate

  • Copy of the balance sheets for the last 2 financial years (to be submitted every year).

  • Photograph, POI, POA, PAN and DIN numbers of whole-time directors/two directors in charge of day to day operations.

  • Photograph, POA, POI, PAN of individual promoters holding control – either directly or indirectly. Copies of the Memorandum and Articles of Association and certificate of incorporation. Copy of the Board Resolution for investment in securities market

  • Copy of latest share holding pattern including list of all those holding control, either directly or indirectly, in the company in terms of SEBI takeover Regulations, duly certified by the company secretary/Whole time director/MD (to be submitted every year)

  • Authorised signatories list with specimen signatures

HUF

  • PAN of HUF

  • Deed of declaration of HUF/ List of coparceners

  • Bank passbook/bank statement in the name of HUF

  • Photograph, POA, POI, PAN of Karta

Institutional Investors/Banks

  • Copy of the constitution/registration or annual report/balance sheet for the last 2 financial years

  • Authorized signatories list with specimen signatures

Body of Individuals/ Unincorporated Association

  • Proof of Existence/Constitution document

  • Resolution of the managing body & Power of Attorney granted to transact business on its behalf

  • Authorized signatories list with specimen signatures

Foreign Institutional Investors (FII)

  • Copy of SEBI Registration Certificate

  • Authorized signatories list with specimen signatures

Registered Society

  • Copy of Registration Certificate under Societies Registration Act

  • List of Managing Committee members

  • Committee resolution for persons authorised to act as authorised signatories with specimen signatures

  • True copy of Society Rules and Bye Laws certified by the Chairman/Secretary

Army / Government Bodies

  • Self-certification on letterhead

  • Authorized signatories list with specimen signatures

How to Complete KYC Online?

To get the KYC procedure done, the following are the steps to go ahead with-

  • Visit the official website of any KRA or fund house to get the KYC completed

  • Enter your Aadhaar card details

  • Enter OTP and click on ‘Submit’

  • UIDAI then verifies the given details. After verification, KRA approves the KYC process

  • You can check the status of your KYC by visiting the KRA portal and adding the PAN number

How to Complete KYC Offline?

The online KYC process takes 7 days to get completed as approved by KRA. All that an applicant needs to follow is the given instructions-

  • Download the KYC form online from the KRA website

  • Complete the form with all the details

  • Visit the nearest KRA centre and submit it to the concerned person along with the valid documents

  • Upon submission, collect the application number to track its status

How to Complete KYC through Aadhaar Biometrics?

When an applicant completes the online KYC, he/she is allowed to invest Rs. 50,000 per annum every year in one fund; however, KYC through Aadhaar biometrics allows one to invest more than Rs. 50,000.

Follow the given instructions to complete KYC through Aadhaar biometrics-

  • Visit the official KRA office or fund house

  • Complete the online KYC registration form there and request for online Aadhaar biometrics

  • Upon submission of the form, an official from the Fund House office will visit the applicant’s home or office for verification

  • Once the authentication gets done, the KYC process will get completed

FAQs
Can I invest without getting my KYC completed?
No, it is compulsory to get the KYC done before investing.
Is it mandatory for me to get in-person KYC verification done before investing more than Rs. 50,000?
It is mandatory to get in-person KYC verification done if you want to invest more than Rs. 50,000.
How long does it take to get the KYC verification done?
Online KYC verification gets completed in a day; however, offline verification takes 7 working days.
How much do I need to pay for KYC verification?
KYC verification is free of cost.
What happens if I don’t have a PAN Card?
A PAN card is an important document to be submitted for all kinds of financial transactions; however, it is not required for non-financial transactions.
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