What is KYC- Why is it Important?

What is KYC- Do you really need to get it done

RBI has made it mandatory for all financial institutions to verify the information of the users who transact with them. Owing to this, all users must comply with the KYC procedure for verification; otherwise, they may be unable to initiate transactions with their respective banks.

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

What is KYC?

KYC, or Know Your Customer, refers to the process of identifying and verifying a customer. It is a mandatory process that must be completed at the time of opening a bank account and/or using other such financial services.

KYC can be further explained as follows:

  • The Reserve Bank of India introduced KYC in 2002
  • The procedure is known as antimony laundering
  • KYC helps organizations/financial institutions in knowing their customers better
  • The idea behind mandating KYC for using financial services is to limit money laundering in the financial market
  • The RBI has mandated that all financial institutions strictly adhere to KYC procedures
  • KYC is required for both new and existing customers
  • KYC records must be updated on a regular basis by financial institutions
  • KYC aids in the detection of fraud in customer accounts

Why is it Mandatory to Complete KYC?

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

In addition to this, KYC is not only used to prevent financial frauds or suspicious activities in the financial market but also protects online businesses and companies all over the world.

What are the Types of KYC Verification?

According to KYC regulations, it is mandatory for both new and existing customers to go through the KYC verification process before opening an account with a financial institution. There are two ways for a customer to be KYC-verified.

  • In-Person Verification

Customers who want to invest more in a specific fund each year must undergo in-person KYC verification. The customer must visit the KYC centers to complete the KYC-verification process.

In-person KYC verification can be obtained by contacting the KYC Registration Agency and completing the verification at home or at the office. Some fund houses also allow customers to verify their accounts via video call. A customer is required to show his/her identity proof and address with a PIN code for video verification.

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

  • Aadhaar based KYC verification

Aadhaar-based KYC verification is carried out using a customer’s Aadhaar card details. This type of KYC verification limits one’s investment to a certain amount, which is up to Rs. 50,000 per fund per year.

How to Complete KYC Online?

The following are the steps to take in order to complete the KYC procedure:

  • 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’
  • Your details will be verified by UIDAI, post which KRA will approves your KYC, if all your details are correct
  • You can check the status of your KYC by going to the KRA portal and entering your PAN number

How to Complete KYC Offline?

All an applicant needs to do is follow the instructions-

  • Download the KYC form from the KRA’s website
  • Complete the form with all the required details
  • Visit the nearest KRA center and submit it to the concerned personnel along with the necessary documents
  • Obtain the application number upon submission in order to track its status

How to Complete KYC Using Aadhaar Biometrics?

When an applicant completes the online KYC, he or she is permitted to invest a maximum of Rs. 50,000 per year in one fund; however, KYC via Aadhaar biometrics allows one to invest more than Rs. 50,000.

Follow the given instructions to complete KYC through Aadhaar biometrics-

  • Visit the KRA’s official office or a fund house
  • Fill out the online KYC registration form and request online Aadhaar biometrics
  • Following the submission of the form, a representative from the Fund House will pay a visit to the applicant’s home or office for verification
  • The KYC process will be completed once the authentication is completed

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 EntityList of Documents
Partnership FirmCopy 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.
TrustCertificate 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
CorporateCopy 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
HUFPAN 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/BanksCopy 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 AssociationProof 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 SocietyCopy 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 BodiesSelf-certification on letterhead
Authorized signatories list with specimen signatures

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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