KYC stands for Know Your Customer. Financial institutions, including banks, Non-Banking Finance Companies (NBFCs) along with other entities like, fund houses and broking firms have mandated the KYC process - as per the guidelines of the Reserve Bank of India - before providing any financial service to customers. After introducing the KYC guidelines in 2002, the RBI directed all banks to be KYC-complaint by December 31, 2005. The process of KYC compliance check for all customers was subsequently adopted by all financial service providers, including market participants. According to the stipulations of the Prevention of Money Laundering Act, 2002, and the Securities Exchange Board of India -KYC Registration Agency (SEBI-KRA) Rules, 2011, it is compulsory for all market participants to follow the KYC guidelines. KYC was introduced with the aim of curbing illegal activities such as money laundering, evasion of taxes, terror funding, bribery, and other corrupt means of accumulating money.
If you are a customer trying to avail financial services, or an investor wanting to invest funds in various market instruments, then you have to mandatorily comply with the KYC guidelines. For instance, if you are a mutual fund investor, then being KYC compliant means that the fund house has access to your personal information, like PAN, address, and identity. This enables the fund house to not only verify your credentials, but also keep a tab of the transactions trail.
For most financial transactions, your KYC details will be required. Be it opening of a new bank account or applying for a credit card you will be required to provide for KYC. If you want to invest in stock markets, the brokerage firm will check KYC status, before opening a Demat and Trading account. The same goes for mutual funds’ investments, where fund houses will conduct a mutual fund KYC status check. Even for getting a new sim card for your mobile, private, and public telecom companies will ask for KYC compliance. Unless you are KYC compliant, you won’t be able to make any changes in the names of your beneficiaries.
Know Your Customer Registration Agencies (KRA’s) are registered with the SEBI and maintain a central database regarding all information pertaining to investors. This information can be availed by various intermediaries such as fund houses or broking firms. There are five KRAs in the country: CDSL Ventures Ltd (CVL), a subsidiary of the Central Securities Depositories (India) Limited, NSDL Database Management Limited (NDML), a subsidiary of the National Securities Depositories (India) Ltd, the National Stock Exchange’s agency - DotEx International Limited (DotEx), CAMS Investor Services Private Limited and Karvy Data Management Services Limited (KDMS). Remember, once you are KYC compliant with an intermediary, your data gets stored in the central database, and no further KYC is required for future transactions.
In the digital era, you can now easily check for KYC compliance online, from the comfort of your home or office. Just visit the website of any KRA and provide your Permanent Account Number (PAN) details. You can instantly know if you are already KYC compliant. In the case of not being KYC compliant, you can complete the KYC procedure either offline, online, or through Aadhar-based Biometric.
First, you are required to download the KYC form from the website of any KRA. Then you need to fill in the requisite details. Thereafter, you are required to provide for your ID and residence proof. For establishing your ID, you can submit documents such as a copy of your PAN card, Aadhar card, passport, driving licence, Voter ID, or bank passbook, having your photograph. For proof of address, you can provide documents, like recent electricity bill, rent agreement, landline bill etc. You are also required to provide a passport size photograph. The filled-up form along with the documents should be submitted to the relevant person or authorities. For example, in the case of opening a Demat Account, you have to provide these to the authorised person in the brokerage firm. You can also submit the filled-in form and the documents at any of the registered KRA’s offices.
Here, your Aadhaar-based biometrics are verified. For example, in the case of mutual fund investments, an authorised person from the fund house will visit your house, collect your Aadhaar card, and map your biometrics such as fingerprints. Your KYC will be validated by matching the fingerprints with the Aadhaar database. You must, however, remember that Aadhaar-based compliance only allows for annual transactions, which are less than Rs 50,000. To remove this ceiling on investments, you can opt for the In-Person Verification (IPV) through video call facility - provided by some fund houses -to verify your identity and address proof.
You can also opt for KYC compliance online by visiting the websites of any KYC Registration Agency (KRA). Once you visit the website of any of the KRA’s and create your account, you will be asked to provide your personal details. Then you are required to provide your Aadhaar number along with the registered phone number. Your information will then be verified through an OTP, sent to your registered number. Finally, you will be required to upload a self-attested copy of your Aadhaar card. After completion of the process, your request will be shortly processed. Meanwhile, you can check your KYC verification status on the particular KRA’s website.
Once you have submitted the KYC form online, you can do an online KYC status check at the KRA’s website. For instance, if you have submitted the form at NDML’s website, then you need to visit the webpage : https://kra.ndml.in/kra-web/jsps/pos/KYCClientInquiry_NEW.jsp. After you enter your PAN along with the captcha code, you will be informed about the existing status of your KYC compliance application. If your KYC is not verified, the status will be shown as pending. Otherwise, you will be able to see your KYC verification status as: Verified by NDML.
Thus, being KYC compliant is a mandatory requirement before you start your investment journey. If you want to open a Demat Account or invest in mutual funds, you can start only after completing your KYC process. As an investor, you can avail multiple benefits, like convenient and digitally secure transactions by being KYC compliant. You must, however, remember to choose a trusted and reliable financial partner before making investments. You can zero in on IIFL, which can provide you with the best Demat Account along with a gamut of individually tailored investment plans to help realise your financial goals.