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KYC or Know Your Customer is a customer identification process. It is under the Prevention of Money Laundering Act 2002 that the Securities and Exchange Board of India has established guidelines that make it compulsory for financial institutions and instruments such as mutual fund houses to know their clients. The KYC process helps in this and in doing so, it also prevents money laundering and wrongful dealings.
e-KYC is the process of verifying the identity of a customer through reliable documents. These documents include PAN Card (for identification and tax purposes), address proof.
To do away with the extensive and repeat submission of documents, Securities Exchange Board of India established the idea of common KYC in 2011. This meant that your first intermediary will process the KYC-related details and then send it online with the Registration Agency (KRA). After the account is active, all sorts of intermediary can utilise the same data for all account work in future.
The (SEBI) has made tirless efforts towards simplifying the process of investing in capital markets, such as mutual funds. By making use of advanced digitisation, the reach of mutual funds has gone up with an eased onboarding operation. e-KYC is the cornerstone of this effort. Making it possible for investors to handle the complete KYC procedure end to end without worrying about the cumbersome effort required by documents and office visits. All of it has been compressed to Aadhaar-PAN -and mobile number to make investments.
Initially, there was only the physical KYC process that needed you to submit paper documents such as a filled-out KYC registration form authorised by the investor. This has to be accompanied with self-attested of Identity proof document copies such as PAN card, etc. This process also mandated an in-person authentication at the local office of the KRA. The process was cumbersome and discouraged investment.
The coming of Aadhaar-based KYC means that the entire set up is changed and KYC processing is going to be faster. The online procedure has removed the requirement for huge paperwork or any in-person verification process.
Before understanding the procedure for e-KYC kindly note that one limitation of the online KYC procedure is that investors completing the process are, as of yet, not allowed to make offline investments. In a situation where the e-KYC-verified user is going for offline investment, a specific document needs to be authorised by the applicant and given to the registered KRA centre. Upon submission and verification, the applicant may initiate investments through the offline route easily.
Give your Aadhaar card number when asked. When you have an Aadhaar Card already, ensure that the mobile number is up to date with the Aadhaar UIDAI website database. Unless this is done, you will not receive the OTP. If you don’t have your number registered you simply have to visit the UIDAI website to find out how to register the number.
After the input of the Aadhaar number, you may generate and get an OTP from UIDAI on the mobile number registered. Remember that the OTP can only be sent to the registered mobile number. So ensure that your cell phone is powered and receiving messages before you request an OTP.
After feeding the UIDAI OTP into the relevant text box, you will receive a document confirming the same. Next, the investor will e-sign the authorised document and send it to the KUA for completion of the Aadhaar e-KYC process. The complete process will take just a few minutes.
The e-KYC procedure so far, will make it possible for the investor to start investments in mutual funds immediately, except for a few SEBI imposed limitations.
An Aadhar based e-KYC verified investor can invest as much as INR 50,000 per fund per year. Meaning that investors making investments in 6 different mutual funds can invest as much as Rs. 3 lakhs in the year.
Biometric verification can increase the limit. This verification needs the applicant to be present at the KRA centre.
e-KYC enables to complete KYC process online with direct authorization of clients. The key objective of e-KYC is to reduce turnaround time and paper work. For instance, Reliance gives the opportunity of complete KYC formalities in real time.
This is a very secure system with respect to data, such as data on account information, demographic data, etc. are saved and relayed under encryption. This gives a certain level of security on investor personal information.
Kindly note that the e-KYC mechanism is fully consent-based. The applicant can take a decision on who accesses his/her data from the database.
Where there is paper-based system, manual checking is required for verification, leaving chances of human error delaying the KYC request process. Paperless Aadhaar KYC reduces human error risks.
The e-KYC procedure for mutual funds is fully in line with needs mentioned in the Internet Technology Act, 2000.
KYC data has real time relay without any hang ups that used to happen when there was paper system.
E-KYC has reduced the chances of such incidents due to system transparency.
Remember that the paper KYC form filled by hand can invite discrepancies and mistakes. Mistakes mean mismatch of information with the database, and hence rejection. In this situation, the whole exercise needs to be initiated from the beginning. The E-KYC automatic form and online operation makes sure that the data is verified on real time basis.
One of the frequent problems faced with KYC hard copies is the case of more than one person claiming non- consent in KYC. E-KYC in mutual fund investments, has a multi-step process that includes authentication through biometrics.
Not a direct influence on the customer, simplification of rules is equal to faster processing times.
When there was hard copy KYC only, at least some middlemen used to charge extra as KYC fee. This was almost like lenders taking money for CIBIL reports.
Initially, the KYC Registration points were given a rule to be the registered point for verification and collection of all KYC data. At first these points were recognised by the Securities and Exchange Board of India under SEBI KYC Registration Agency Regulations Act, 2011.
With the dawn of online KYC system, KRA’s role has not really changed. The coming of of KRA has simplified the process and replaced the system of duplicate and multiple KYC.
The advent of e-KYC has simplified investment procedure.
The initial procedure of the customer KYC lies with the intermediary.
Modifications in KYC information are updated later.
What does an NRI need?
A non-resident individual (NRI), will be required to tick a box and wait for the NRI status to be verified by the PAN database.
Can an investor give a change of address along with redemption request?
Any change regarding change in Name-Address- Status etc. should be updated with any point of sale. The only thing required is a copy of your KYC slip and address proof.
Change in Income has to updated?
Yes. If there is an increment/decrement in your income that has an effectively influence on your income bracket previously stated in the KYC Application form, you must apply to any point of sale mentioned in the form. No proof is required.
Is there expiry for KYC acknowledgement?
None. Once you have received KYC acknowledgement and given it in for a mutual fund, there will be folio registration and future account activity quote.
Banker verification in case of signature difference.
The attestation of the signature is done to protect investors. In certain situations, mutual funds are extra diligent when signatures do not match.
Date from when it is mandatory for investor’s KYC compliance.
Active from 01 February 2008, an investor putting in INR 50,000 and more requires KYC compliance.
KYC compliance for NRIs living out of India.
A soft copy of the KYC form is going to be present on the Mutual Funds website. An investor can go to the distributor for a form. The finished form and required attested documents should be deposited with the point of sale.
Mutual Fund transaction once the KYC procedure is done?
Applicant will have to affix KYC acknowledgement with the application form for first time investment.
In the situation when I am already providing my PAN Proof for the investments in Mutual Fund, is it going to be enough for meeting KYC needs?
The need to provide your PAN together with proof is enough as proof of identity. It is required that the Mutual Fund verification is extended to identity, address and to obtain further information about the investment.
If the investor is already existing, how will the KYC norms be introduced?
KYC norms are applicable to all investors. It is great if all investors obtain acknowledgment on KYC and submit it to the Mutual Fund to avoid future hassles.
Is KYC Acknowledgement a component of Mutual Fund? What are the Forms needed for time-stamping?
KYC Acknowledgement will be done on the photocopy of the form. Time stamp is not required.
KYC Compliance charge?
As of now, KYC has no charge. It is completely free.
Person of Indian Origin?
The parameters applicable for the Non-Resident Indians will be applicable to a Person of Indian Origin.
After starting of a mutual fund account through completion of needed formalities post investor profit, required documents that are needed for a new investment?
Investors should include their KYC acknowledgement together.
Should the investor visit PoS personally to obtain KYC Compliance?
No. When an investor is not in a position to visit PoS in person, the application form together with the required documents can be put in through the representative, who will arrange a fulfilment of the KYC obligation and get the KYC acknowledgement through any of the PoS.
Is KYC applicable on everyone?
As of now, investors be individuals or non-individuals, who intend to make any investment are going to be required to be KYC Compliant. This will be applicable to Systematic Investment Plan (SIP) since 01 February 2008.
How does a minor turn to major?
Upon a Minor attaining the age of majority, the investor must be KYC Compliant and have KYC Acknowledgement of their own.
In a scenario when a KYC Application Form lacks information or is insufficiently equipped with documents, investments will not be allowed.
After receiving my KYC Acknowledgement.
After your KYC compliance is fulfilled, you will have to update your KYC details with all mutual funds where you have invested.
Multiple folios or accounts in a Mutual Fund?
You update the Mutual Fund KYC Acknowledgement update for all the folios and accounts you carry in it.
Completed the previous KYC procedure with CVL?
When KYC is using the PAN, the slip for acknowledgement received can be affixed with application for investment for first time investment.
KYC fulfilled with no PAN, using other documents for identity. In such a situation, CVL sends across communications to the respective investors requesting them to submit self-attested copy of PAN card.
What is a KYC Application Form?
This is a form meant for use by individuals and other entities. KYC form soft copies are made available on the online portals of most mutual funds.
Change of Name, Signature etc?
Update these modifications at any point of sale. You’ll have to submit a copy of your KYC Acknowledgement. One will have to wait for a week before all the mutual funds database is updated.
Income detail requirements? How to save from wrong use?
It’s compulsory for Mutual Funds to receive details on financial state. This is when income details are required. No documents are required.