The term KYC is prevalent. It is a standard protocol that is compulsory to follow in the case of monetary dealings with any financial company/institution. However, the exact meaning of KYC or the nature of its verification is not known to many.
Being aware of KYC protocols is very important for individuals on the cusp of adulthood who might be ready to make a financial transaction/investment. Knowledge of finance-related matters not only adds to your general expertise but can also protect you from engaging in potentially fraudulent activities.
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What is KYC?
The full form of KYC is Know Your Customer. It is a process conducted by banks and financial institutions to verify the authenticity and credibility of their potential customers.
What is primarily verified during KYC verification is the identity, address, and income of the individual or group concerned. Consequently, documents corroborating identity, address, and income are required to be produced at the time of verification.
KYC verification has been made compulsory by the Reserve Bank of India (RBI) since 2004. In accordance with that, every bank, financial institution, and other financial corporation carrying out financial transactions must compulsorily carry out the KYC verification prior to establishing business relations with clients.
The main objective of KYC verification is to prevent banks and finance companies from potential involvement in money laundering or other such fraudulent activities.
What is the Importance of KYC?
One of the main reasons for the importance of KYC verification is to prevent unlawful financial activities. Illegal financial transactions conducted through banks can put the onus of such activities on the bank or the financial institution in question.
Secondly, the credibility of individuals or businesses investing in services such as mutual funds, stock brokerage, etc., can also be verified through KYC. By requiring the company owners or authorized signatories to produce necessary documents, the finance service provider can verify the legal status of the company that seeks to invest.
It is only after all the verification has been carried out thoroughly can the customer avail services from the bank/financial institution, whether opening a bank account, a trading account, or a Demat account, investing in mutual funds, or any other activities.
What are the Types of KYC?
There are two types of the process through which KYC verification may be conducted:
● Aadhaar-based KYC
This is an entirely digital process that is fast, convenient, and hassle-free. With this method, customers are only required to submit a copy of their Aadhaar card for verification. This does not involve going for verification in person and can be completed through a few simple steps on one’s phone.
● In-Person KYC
This is an offline, in-person verification method that can be conducted in one of the following ways- the customer can visit the nearest branch of the bank/financial institution with whom they are dealing or visit a KYC kiosk.
In the latter, a KYV registration executive shall perform the verification. In some cases, a verification executive may also visit the customer’s residence for verification, though this is much less frequent.
Some banks and mutual fund services also offer verification through video calls. The customer will be required to display the necessary documents to comply with the verification process.
What are the Documents Required for KYC?
What is verified in KYC verification is mainly the customers’ identity and address. If they’re a company or a business, the authenticity of the trade will also be checked. The most common documents generally asked for are the Aadhaar Card and the PAN card. However, other documents may also be produced under different financial institutions in some cases.
Identity Proof:
- Aadhaar Card
- PAN Card
- Current Voter ID
- Current Indian Passport
- Valid Driver’s License
Address Proof:
- Aadhaar Card
- Valid Driver’s License
- Current Voter ID
- Current Indian Passport
- Utility Bills such as those of water, electricity, or gas.
Proof of Income:
For proof of income, bank statements showing salary credits or salary slips are generally accepted.
What does the KYC Activity Consist of?
KYC Know Your Customer is a due diligence process aimed at verifying the identity and legal status of the customer(s) to ensure that no laundering activities may transpire under false pretext. It works through the following steps:
- The identification of the customer
- Identification of any the beneficial owner in case of a business/company investing
- Verifying the authenticity of the customer by corroborating the necessary documents and information obtained from a reliable source.
- Analyzing the given data keeping in mind potential business relations between the customer and the bank/financial institution.
What are the Requirements of KYC?
KYC registration is compulsory for all financial dealings with a legitimate financial institution/bank. It is something that will inadvertently be asked of a customer once they open a bank account, invest in mutual funds, invest in a stock brokerage, etc. Thus, KYC verification not only accredits the customer’s identity but also facilitates faster transactions and smooth access to services. These are two of its most important uses:
- KYC verification ensures safety and security in case of financial transactions with bank services.
- KYC is compulsory for all financial activities. To open a bank account, manage an RD, or open a fixed deposit, KYC is mandatory before customer relations can be forged.
- In the case of investments as well as insurance, KYC registration plays an important role. Many improper and fraudulent practices may be attempted in the field of insurance. KYC preempts such possibilities and ensures healthy and ethical practices.
What is the Difference Between eKYC and Full KYC?
eKYC or Electronic-KYC is a simple, instant, and paperless process. It simply requires the customer to input their name, PAN number, and Aadhaar Number. Other documents, such as proof of address, are not required. Post this, the customer will receive an OTP on the Aadhaar registered mobile number. This OTP will enable the customer to sign in using your Aadhaar based eKYC electronically.
This provision allows mutual fund investors to invest in their funds. However, there is a limitation in investing with eKYC. A person can invest only up to INR 50,000 per mutual fund per year if verification is through eKYC.
As opposed to this, there is a full KYC process. This requires additional details such as proof of identity, proof of address, FATCA details, and in-person verification. Complete KYC verification does not necessarily imply verification through offline means and can, in fact, also be availed online. The full KYC verification takes about two weeks to complete, and you will receive a confirmation through SMS and email. With fill verification, you can invest up to any amount in mutual fund schemes.
How Can I Check My KYC Status Online?
In the aftermath of e-KYC, it is now possible to check your KYC status online. After you register by providing the necessary details, you will receive an update through SMS/email about the completion of your registration.
Subsequently, you will be updated if the approval process is complete too. Alternatively, you can also visit any KYC registration agency website to find out the latest status of your KYC verification.
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Conclusion:
KYC is a government-mandated process that all individuals should promptly fulfill before embarking on financial transactions with banks to help prevent money laundering, fraud, and other corrupt activities.
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