KYC stands for Know Your Customer. Many of us while applying for bank accounts or while investing in any of the mutual funds may have come across this term.
But we don’t realize how important is it for us and the concerned authorities. So we will talk about KYC and how do you get your KYC done in this article.
KYC or Know Your Customer is a set of procedure that requires an individual, a group or any organization to undergo while dealing with any financial institute.
Identity proofs, proof of address, verification of the signature, legal status are some of the processes that an individual need to undergo in KYC.
KYC is an absolute requirement to financial institutions in India. Failing to produce necessary information or necessary documents for KYC to any of the financial institutions will lead to
- refusal to open an account or removal of existing account – for a bank
- refusal to permit for any investment – for mutual funds
Reserve Bank of India made KYC compulsory to all banks and the order to make it compulsory was passed in the year 2004.
According to the order passed, the objective of KYC is to prevent the financial institutes and relevant companies from being used by terrorists and money launderers in a criminal act or any illegal act.
Now that we know why KYC came into the order it is time to gain some more knowledge related to it.
In this article
APPLICABILITY OF KYC
We know that KYC has to be followed by every individual while dealing with any sort of financial institutes and below mentioned are various instances where the KYC procedure has to be followed by an individual:
- While opening a bank account of any type.
- KYC has to be done when the banks don’t have enough documents of the existing account.
- KYC also has to be done if an individual decides to invest in a mutual fund.
- Also it has to be noted that based on the norms, the banks may ask for mandatory KYC in other instances too.
PROCEDURE FOR KYC
For KYC related to banks, the person undergoing KYC will have to meet the relationship manager or an official person that the bank has designated for the purpose.
KYC related to investments in a mutual fund can be done by downloading the application form from Association of Mutual Funds of India (AMFI) or Central Depository Services Limited (CDSL) website.
Then application form has to be filled correctly and then has to be submitted at Point of Service with necessary documents.
- Proof of identity: Following documents can serve as a proof of identity and they are as follows:
PAN card, passport, driving license, ration card (as per bank/PoS expectation)
- Proof of address – Following documents can serve as a proof of identity and they are as follows:
Bills of utilities like telephone, LPG, electricity etc., bank statement, ration card (as per bank/PoS expectation)
- Proof of income (for mutual funds)
Filling the KYC form is mandatory for an individual to get its KYC done. The form contains several details that needs to be filled correctly and then the individual needs to submit it.
It is better to know the details that you would be required to fill while getting your KYC done.
Following are the details required:
- PAN CARD: The individual needs to fill the Pan card number and also attach the attested copy of the PAN card in the form.
- NAME: The name of the individual that is mentioned in the identity proof given should be mentioned in the form too with the prefix that is MR, Mrs or Ms. The first name, last name and the surname of the applicant has to be mentioned.
- FATHER OR SPOUSE NAME: The next thing that needs to filled in the form is the name of the father or spouse of the applicant.
- MOTHER NAME: Next thing on the list that needs to be filled in the form is the mother name of the applicant.
- DATE OF BIRTH: The date of birth has to be mentioned in the format given in the form. This format can be like dd-mm-yyyy or mm-dd-yyyy.
- GENDER: The applicant has to fill their gender that can be male, female or transgender. For Male you need to fill M, F for female and T for transgender.
- MARITAL STATUS: If the applicant is married then tick on the married box and similarly tick if unmarried. In case of other marital status tick on the others box.
- CITIZENSHIP: If you are an Indian then tick the box or if you are from other country then tick the other box accordingly and mention the name of the country with the country code.
- RESIDENTIAL STATUS: There are for types of residential status and they are as follows:
- Resident individual - Every individual who is domiciled in this state, even though absent for temporary or transitory purposes, and every individual who for an aggregate of more than six months both maintains a permanent place of abode within this state and who is present in this state.
- Non-resident Indian.
- Foreign National.
- Person of Indian Origin
Based on the residential status of the person the form has to be filled.
- OCCUPATION TYPE: Then the applicant has to fill the occupation type and tick the one according to their occupation from the given types.
GUIDELINES FOR FILLING KYC
- Self-certification of documents is mandatory.
- For particular section update, tick in the box available before the section number and strike off the sections not required to be updated.
- Copies of all documents that are needed to be submitted has to be self-attested by the applicant and should be accompanied for verification.
- If any proof of identity or address is in a foreign language, then translation into English is required.
- Name and address that is mentioned in the KYC form must match with the document provided.
- If the correspondence and permanent address are different then both the proof of address should be produced.
NEED FOR KYC
KYC norms were introduced by the Reserve Bank of India (RBI) in 2002. The RBI directed all banks and financial institutions of the country to put in place a policy framework in order to know specific things about their customers before opening any bank account or investing in mutual funds.
The objectives of KYC guidelines were to prevent the banks and other financial institutions from being used either intentionally or unintentionally by criminals or any individual for activities related to money laundering.
These procedures also help the concerned parties to better understand their customers and also their financial dealings. This enables them to manage their risks prudently. Banks usually frame their KYC policies incorporating the following four key elements:
- Customer Acceptance Policy;
- Customer Identification Procedures;
- Monitoring of Transactions;
- Risk Management.
In recent months, there has been a succession of disclosures all around the world about how banks and other financial institutions are compromising on the procedures related to customer identification and are also indulging in money laundering and other unsavoury activities.
The banking system of most countries including the US, India and also China have realized that to avoid chaos and disorder in the country they need to remove shady banking practices from their country.
And for that particular reason the regulators all around the world have started taking action on banks and have made it imperative for them to fool-proof their procedures.
And the important step being taken in this direction is the directive of the concerned authorities to the banks to follow the KYC or the Know Your Customer norms and procedures by which the customers and their details will be recorded and stored so that in case of any criminal activities or wrong doings, the law enforcers and the regulators will have the money trail leading to the respective individuals or entities.
The key aspect about banking is that money should be followed or in other words, there is a need to investigate the money trail in order to see where it is starting and where it ends.
Once there is an establishment of the money trail, it becomes very easy to track down the wrong doers and hence for this reason the banks must ensure accurate, reliable, and updated KYC norms in place for all customers.
Not just the banking world but the other regulators too have made KYC mandatory so as to create a safer environment. The Securities and Exchange Board of India (SEBI) has also mandated the KYC procedures for mutual funds and other broking accounts.
In addition to that the Insurance Regulatory Development Authority (IRDA) also took similar actions while buying insurance and the Forwards Markets & Commission (FMC) for commodity trading have also followed same footsteps. You need to submit it even for making post office deposits.
There is no escaping the paperwork while investing in financial products. Be it, opening a new bank account, demat account or buying insurance, filling the Know Your Client (KYC) documents is a mandatory procedure today.
There is a need for a safer environment in the country so that every individual can gain from it and all the fraudulent activities are removed from the country.
The system has started towards the contribution for the same and now it is time for the citizens of the country to take responsibility and ensure that correct details are given to the banks and other concerned institutions.
Even though sometimes we all have to go through some kind of harassment while doing a KYC, we should keep our cool, follow the procedures and get the KYC done.
To know more tips of investing in a mutual fund, Read More: 10 Tips on investing in Mutual Funds
Disclaimer: the views expressed here are of the author and do not reflect those of Groww.