What is KYC?
Know Your Customer (KYC) is a process required by RBI norms which needs to be completed before initiating any investment. It is used as an eligibility test of an investor to prevent illegal activities like money laundering. So, if you are planning to start investing in mutual funds, you need to register your KYC first.
Why is KYC necessary for mutual funds?
KYC norms were put out by the RBI in 2002 and have been adopted by SEBI for all investment related activities including opening of trading account, demat account, mutual fund investments, etc. The idea was to cut down on corrupt practices like money laundering, acting as fronts for entities, trading in cash without audit trails, fraud, and financing of anti-national activities.
KYC norms are mandated by the Prevention of Money Laundering Act (PMLA), to track the legality of funds used for investments. Money laundering refers to converting money that is earned through illegal ways into legal money by passing it through various banking channels. This makes it difficult for authorities to track the ‘dirty money’ to its illegal origins. The main aim of KYC process is to prevent capital markets from being used intentionally or unintentionally by criminal elements for money laundering activities.
With the KYC in place, your data gets stored in a central database and you only need to do the KYC once. After that, it is just picked up from the central database by linking your PAN card. KYC helps banks and other financial institutions to track their customer transaction trails. This also helps link all your capital market activity with your bank account and your tax returns and plug any gaps in reporting. SEBI has made KYC compliance mandatory for mutual fund accounts, demat accounts and trading accounts.
How should you apply for KYC?
The KYC Process can be initiated and completed with any of the following SEBI-registered intermediaries:
- Fund House (Asset Management Company)
- KYC Registration Agency (KRA) such as CAMS, Karvy, CSDL (Central Depository Services Limited) Ventures, NSDL (National Securities Depository Limited) and NSE-owned (National Stock Exchange) DotEx International Limited.
The KYC registration process can be completed in three ways-.
- Visit the website of a fund house or any of the above-mentioned KRA website and create an investor account by filling in your personal details and your Aadhaar-linked mobile number so that you can verify the account using that OTP.
- Upload self-attested copies of your Identity Proof and Address Proof. Your eKYC process is done.
- Visit a branch of a fund house or any of the above-mentioned KRA.
- Fill in the KYC form and submit your Identity and Address Proof.
Aadhar based e-KYC:
- If you are investing in a mutual fund scheme directly through the website of the mutual fund house, you can just go to the website, put in your Aadhaar number and complete your KYC by putting in some details and the OTP that comes on your registered mobile number.
- If you are investing via a mutual fund distributor or appointed person for e-KYC through Aadhaar. The Sebi-registered distributors will perform e-KYC using registered devices with KUAs (KYC user agencies). Investor will enter Aadhaar number and biometric and provides consent on the registered device.
What documents do you require for KYC?
For KYC registration, KYC form has to be filled with all the details and needs to be submitted along with self-attested copies of required documents. You can download the KYC form from the following sites:
- For this you need to visit the website of CAMS KRA, Karvy or other registrars.
- Or you can also visit the website of the fund house where you want to start your investments.
- Or you can reach an Independent Financial Advisor.
The following documents need to be submitted for completing the process:
- Recent passport size photograph
- Proof of identity such as a copy of PAN card or UID (Aadhaar) or passport or voter ID or driving license
- Proof of address passport or driving license or ration card or registered lease/sale agreement of residence or latest bank A/C statement or passbook or latest telephone bill (only landline) or latest electricity bill or latest gas bill, which are not older than three months.
There is another method to complete KYC online known as Aadhar based e-KYC. This method is completely paperless. Punch in your Virtual Aadhaar number (which you can generate on the UIDAI website), enter your PAN, mobile number and OTP sent to your mobile number, and you can begin transacting online.
How do you check if you are KYC compliant?
You may be already KYC-compliant though. It is now effortless to check your KYC status online. You may check status of your KYC by entering your PAN in either of the links below:
No, as KYC is one-time exercise (central process), it needs to be done just once before investing. Once your KYC is registered you need not to undergo same process again while investing with different mutual fund houses.