Chapter 3.10: What is a KYC document?

Summary:

• Know Your Customer (KYC) compliance is mandatory for investing in mutual funds.
• New investors must submit duly filled in KYC forms along with proofs of identity and address.
• Electronic KYC by Aadhaar allows investors to fast-track the process.

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What is a KYC document?

Several documents are required by registration agencies to complete the Know Your Customer (KYC) process for mutual fund investors. They include KYC forms and proofs of identity and address.

What is a KYC document?

Your Know Your Customer (KYC) status will be checked first when you apply for a new account. This applies when you try to open another bank account or get a new phone connection, for example. KYC compliance is also mandatory if you plan on investing in mutual funds.

KYC compliance is a prerequisite for mutual fund investment. You need to complete KYC formalities for such investment. To begin with, the institution concerned will provide you with a KYC form. You must fill this in and furnish documents to support the information provided.

Here the form and the supporting paperwork are your KYC documents.

Why is it necessary to be KYC-compliant?

The Reserve Bank of India (RBI) introduced the KYC norms in 2002. Such norms came into being to cut down on corrupt practices like money laundering, fraud, and financing of terrorist activities. Such activities are often carried out via banks and other financial institutions.

With the KYC norms in place, banks and other financial institutions find it easier to track their customers and transaction trails. The KYC rules have also been adopted by the insurance and commodity trading sectors. The Securities and Exchange Board of India (SEBI) has made KYC compliance mandatory for mutual fund and broking accounts.

KYC compliance for a mutual fund

The KYC process is your first step towards investing in mutual funds. As a new investor, you should approach a KYC registration agency (KRA) to complete the formalities. It is usually a one-time process for mutual fund investors. After this, you can invest in any mutual fund from a fund house of your choice.

What are the KYC documents?

1. Application forms

If you are a new investor, you must fill up a KYC form and a trading account application form. You can get these from Kotak Securities or any other KRA of your choice.

Most of the application forms require details like your name, address, office address, joint account holder details, account nomination, and so on. These details are part of your identification. The KYC–KRA form is a must as all investors have to follow SEBI norms before they can start trading in any assets.

2. Identity proof

The KRA will typically ask for a copy of your PAN card. But some other documents are also acceptable as proofs of identity. These include:

• Passport

• Voter’s identity card

• Driving licence

• Aadhaar card

3. Address proof

If the document submitted as identity proof does not contain your address, another valid document will be required to furnish your address details. The approved documents include:

• Utility bills

• Bank statement

• Ration card

• Letter from the employer

4. Blank cheque

When you open an account with a fund house or a brokerage, you must link it with your bank account. For this reason, you should provide a blank cheque. The IFSC number mentioned in the cheque would help identify the branch your bank account belongs to.

Similar documents are required when you open a trading or demat account.

KYC documents needed for verification

Once you have submitted all the documents, the KRA will conduct an in-person verification. The purpose of this verification is to re-check your identity and address details. This is mandatory as per the SEBI rules. Typically, the KRA will set up an appointment with you. You will have to carry the original documents listed in your application forms for verification.

The fund house concerned will upload your details on the KRA’s system after the verification process is complete. You will then receive a notification from the KRA. This completes the process—you are now set to invest and trade freely in the securities market.

Aadhaar-based eKYC process

To speed up the process, you could opt for the Aadhaar-based electronic KYC (eKYC).

For this, you would have to visit the KRA’s website and find the section dealing with KYC proceedings. Once there, fill in your basic details: your name, contact details, PAN card number, linked bank account number, and so on. If you are not KYC-compliant, the site will request you to provide your Aadhaar card number and registered mobile number.

A one-time password (OTP) will then be sent your registered mobile number. You must provide authentication by entering this OTP and your pin code.

Following this, you will have to upload a self-attested copy of your e-Aadhaar and provide your consent to the further processing. The KRA will automatically verify your details with the UIDAI database.

Once the verification is successful, you are ready to start investing.

Note: While the Aadhaar-based eKYC allows you to skip the in-person verification, it limits your annual investment per mutual fund to Rs 50,000. Once you exceed the Rs 50,000 limit, in-person verification with original documents will become necessary.

Summing up:

Your KYC documents help you embark on your journey as a mutual fund investor. If you wish to fast-track the process, you can always opt for the Aadhaar-based eKYC.