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what is kyc

What is KYC? Know Your Customer (KYC) Guidelines

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What is KYC is a very important question if you are investing or using financial services. Know Your Customer or KYC requirements and guidelines were effective January 1st 2010 for all mutual fund investors in India, irrespective of how much amount you invest in them. If you don’t know What is KYC, here is a small primer on KYC guidelines, how to be complaint and why you should act on it today.

Without it, your mutual fund investments cannot progress.

What is KYC? Its Knowing Your Customer’s

This is a process by which banks and financial institutions achieve customer identification, their address and their financial dealings. In a world full of scams, money laundering and terrorism, it is becoming increasingly important to identity customers who invest money with banks and financial companies. A bank or regulated company will not want to turn around and realize that they had a Harshad Mehta on their list of customers without knowing what he was up-to.

This was first introduced in India in 2002 by the Reserve bank of India (RBI) to identify customers before they opened a bank account. The idea was later adopted by IRDA for issuing out insurance policies to investors and  later by SEBI for opening brokerage accounts. Eventually, all our financial dealings will come under KYC norms.

What is KYC

What has changed now ?

Before January 1st, only resident individual investors making investments of more than Rs 50,000/- in mutual funds were mandated to complete the KYC norms. This has now been taken away and effective January 1st all individuals, including NRIs, corporates, HUFs, trusts will need to be KYC compliant even if they want to invest a paltry amount of Rs 500/-. All your systematic investment planning, purchases and switches will be on hold till you complete the norms.

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Now there are 2 types of KYC:

1) eKYC: Here an investor is allowed to invest invest Rs 50000/- per Year. So if you are doing and SIP of Rs 5000 for a year you cannot do it as total amount accumulated is more than 50K. These KYC are also called PAN-exempted KYC.

2) CKYC or Centralized KYC: Here there is no restriction on investments. The KYC database is managed by Cersai website. This is one time KYC and can be accessed by your bank, stock broker, mutual funds and other financial institutions.

For both these KYCs Aadhar is mandatory form 31 March 2018.

This is a one time process with all the mutual fund houses – so individual fund houses will not come to you separately for verification.

How to be compliant ?

The mutual fund industry has appointed CVL (CDSL Ventures Limited) (website) to drive the KYC process for investors.

You need to hand over the following documents at any points of service (POS) locations in India :

  • A filled in application form (Available at the CVL website under “Downloads”)
  • Your PAN card
  • An address proof (passport, ration card, voter ID card, electricity bill, drivers license)
  • A passport size photograph

Upon submission, the POS will verify all your documents and dispatch it to CVL. You will receive a letter of acknowledgment.

This service is free of charge as of  now. A minor less than 18 years old cannot apply.

You can apply for know your customer compliance under any of the below categories and sub-categories :

Category Sub-Category
Individual Resident Indian
Non-Resident Indian
Non-Individual Corporate
Body Corporate
Partnership
Hindu Undivided Family (HUF)s
Trusts
Financial Institutionss
Foreign Financial Institutions (FII)a
Association of Person
Bank
Government Body
Defence Establishment
Any Other
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KYC for NRIs?

NRIs will need some additional documents like copy of passport and proof of overseas address.

KYC for Corporates

For corporate, the copy of PAN, Address Proof, Aadhar is required for all directors. Also a list of shareholding pattern is required along with Article of Association & Memorandum of Association.

How do I know I am complaint ?

Hop over to the CVL website at the KYC Inquiry page and enter your PAN number. A self explanatory status will be shown to you as either – complete, reject or under process. Now there is an odd “Invalid data” message that you can see sometimes. That is probably because it does not recognize your PAN number at all.

What happens after I become complaint ?

After you receive a letter of acknowledgment, you will need to submit this to fund houses. Along with the acknowledgment letter, you need to attach the list of your existing folio(s) and send it to the registrars for updation.

Post verification and status update, investors will be able to transact as usual in the mutual funds.

If you do not have a valid compliance, your investment in the mutual funds will automatically be rejected.

My take

There is a section of the medial which has reported that customers are being harassed in the name of KYC norms. Kill Your Customer better suits the compliance is what they say.

It makes no sense to ask for another address proof if one already has a PAN card. Providing innumerable documents from customers every now and then is not being customer friendly at all. Duplication of documents is a pain one has to live with as of today.

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Many investors have complained of running around to get their progress and on track. The pain of trying to make yourself compliant might be an impediment for you to go and do it in the first place. This makes less investors  come in and invest –  many have alleged that this does not lead to financial inclusion.

In India, it is only the mutual fund industry that has centralized KYC implementation with CVL. However, other institutions are still doing this individually and there is an overhead in terms of cost and time for each such institution to verify the customer separately every time. The customer also has to provide the same set of documentation each time to different companies.

There needs to be a smarter way of doing things. Maybe the answer is UIDAI.

Hope now you know answer to What is KYC?

This article on what is KYC was modified on 25/02/2918.

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Reader Interactions

Comments

  1. Ashish says

    Actually – the KYC is pain. What is more pain is that even though you have a central KYC – if say you change your address you still have to go to every mutual fund house to get it changed in your account. I am not sure what purpose does the KYC then serves.

    • TheWealthWisher says

      @Ashish, Its a pain no doubt. Hopefully it will improve. But then its better to have it than not to, is it not ?
      You would not want innocent lives lost because of a terrorist who was banking via a bank which did not check on his credentials.

  2. MRS says

    Your article has proven to be very informative! I was under the impression that since my documents have been submitted at the time of opening my demat account, wouldnot have to resubmit them. Dont understand why those docs cannot be reused now to make me KYC compliant. Especially since I also hold a bank account with the said institution so the docs have been doubly verified!

  3. RaviShankarKota says

    Hi Radhey,
    Thanks for nice article.I have recently taken Dmat account of kotak securities.Kotak official told me that he will get my KYC done as I want to purchase my funds through Dmat only.
    Shall I need to follow any additional procedures now?Any suggestions !

    with Regards,
    RaviShankarKota

  4. Raj says

    I have invested a lakh in mutual funds in 2006.But have not got KYC until now.I will apply in June to get KYC.what would have happened to my MF investment.

    • TheWealthWisher says

      @Raj, Nothing will happen. They will remain as is. You cannot invest any more into MFs till you do your KYC. Nothing happens to your existing MFs. Enjoy !

  5. ameerkhan babu says

    I APPLIED FOR KYC IN JAN 2011 AND TILL APRIL END KYC STATUS SHOWS PRESENT IN PROCESS,
    BUT FROM MAY ONWARDS IT SHOWS AS INVALID DATA

    what i have to sir

    • Radhey Sharma says

      @ameerkhan babu, Contact the place where you had filed it. Your best bet is escalation. You might have to provide the data again. The KYC process has been a nightmare !

  6. Udayakumar says

    I have a SB account in State bank of india. It is required KYC for the SB account. please advise me.

  7. Anand says

    Sir, I on the CVL site my KYC status shows valid. The persons to whom I had submitted my documents for KYC compliance[from ICICI Securites] are not reponding further. What is the process and documents needed to submit to the indivudual MF companies, of which I have purchased the mutaul funds of-line before KYC complansion.

    • Radhey Sharma says

      @Anand, If you are using ICICI DEMAT to purchase the MFs, then you do not have to do anything. It’s done automatically.

  8. Sangeetha says

    I have a Icici Demat account.I would like to apply for HDFC Sip through the demat account.However I have not done the KYC.Please advise.I live outside India.

  10. ANIL says

    This article is really informative. I already gone through this process 2 times. I had submitted my KYC form 2 times in ICICI direct office. But both time it got returned with the reason address proof not attached. Where as I had submitted my address proof which has ICICI office person’s stamp and signature. Still both rejected form contains my adress proof along with stamp. First time when i showed to icici officials they told me to re-submit but again next time same thing happen. I checked with ICICI officials but they don’t have any answer.
    My forms which are completed with documents but still rejected…as I already wasted 2 months for same process. Each process takes minimum 1 month..even though they shows 10 days time on website, but finally output is zero.
    Can you pls. let me know to whom I should contact and show both rejected forms. Any contact no. or email id other than icici officials to whome I already contacted…..Thanks…

  12. ANIL says

    Thanks a lot Sharma Sir,
    Definitely I will try another POS , I tried with few POS nearby my area as per listed in website but now nobody accept only KYC form, only with new investment with them then they accept KYC form.
    Thanks a lot Rakesh for suggestion of HDFC securities. But one question I don’t have any HDFC securities but still can I submit my KYC form there ? If it can save my time and headache then i will definitely approach to them. Also as per Sharma Sir’s suggestion i will write to cvlhelpdesk@cdslindia.com and try to find out why they rejected my forms in spite every document was proper.
    Thanks again for guidance.

  14. Ankit says

    I have got KYC done for me when I invested in MF one year back. Now I want to open a demat account with some other broker. Do I need to get a separate KYC done for this? Broker house is asking to fill the KYC form again ? Is it really required to get it done separatly for MF and for demat account ? please suggest. Thanks.

    • Radhey Sharma says

      @Ankit, No you do not need to do KTC again. Give him the old KYC information or simply your PAN and ask him to check at his end.

        • Vivek K says

          @Ankit, I couldn’t locate any official news on this but it is mentioned in this article itself. May be you can look at RBI website if you need some official statement.

          I did my KYC last year and purchased different MFs since then and never filled KYC again.

          • Ankit says

            @Vivek K,

            I found a SEBI circular which states KYC needs to be done just once. (Refer point 3 of SEBI circular no. MIRSD/SE/Cir-23/2011 dated December 02, 2011)

            However there is a conflicting guidline too.
            (Refer Point 16(b) ot Chapter III of SEBI notification no. LAD-NRO/GN/2011-12/29/36772 dated
            December 2, 2011). Here it is said that it will be optional for
            the intermediary to verify and download the client’s details from the system of KRA
            OR to take fresh KYC as per existing system.

            Confusing…!!

          • Vivek K says

            @Ankit, Thanks Ankit for sharing this information.
            I think the last guideline is to give liberty to the institutions to ask for KYC if they have any doubt on the current status of any customer.

            As far as my knowledge goes KYC was started as an Anti Money Laundering tool, which is to trace/control funding of terrorist activities. If any institution has a doubt on any new customer they can always ask for more personal information including KYC. I don’t see any harm, it is a simple exercise.

  15. Abhijna says

    I have SBI a/c n nw its on KYC complaint n i couldnt get my money back.. wht shall i do??

      • Vivek K says

        @TheWealthWisher, Radhey, is it mandatory for a person to be KYC compliant before taking an insurance?
        I got a little confused with the above question “KYC for insurance”..?

        • Rakesh says

          @Vivek K,

          I don’t think you need to be KYC complaint for buying insurance. I bought an online term plan from Aviva a couple of months back and they did not ask me anything for KYC.

          • Vivek K says

            @TheWealthWisher, Do you know the reason for this?

            Yesterday I applied for personal accidental insurance and the company did not ask for my PAN number or KYC status. So, how would they verify if it is mandatory? There was no such column in the form as well.

          • Rakesh says

            @Vivek K,

            No Pan details, that’s strange. For term plan they did ask.
            By the way from which company did you buy personal accident insurance and did you opt for any riders. If you can share your experience it will help other readers.

          • Vivek K says

            @Rakesh, I applied with Apollo Munich through medimanage. No riders, I prefer to keep it simple.

            I have collated lot of information on accidental insurance. I am planning to consolidate everything in an article and share with Radhey to publish it if he likes.

          • Rakesh says

            @Vivek K,

            Thanks for your feedback, it would be great to publish as an article here and will benefit a lot of members. Radhey would be more than happy to do the same. I have been planning to buy Insurance for over 6 months, just keep postponing, had initiated talks with medimanage but did not take it further. Just bought term plan 2 months back, accidental insurance is next.

          • TheWealthWisher says

            @Rakesh,

            Riders on personal accident insurance – what is that now ?

            They ask for age proof and address proof and salary proof for term insurance but not KYC. The intent of KYC originally was meant to identify a person who wanted to make investments to avoid money funding terrorism.
            That would not stand valid when you buy term insurance for any insurance. The money for insurance cannot find its way for such activities but it can do so via banks so KYC for banking and stock market investments.

          • Vivek K says

            @TheWealthWisher, Thanks for the confirmation Radhey. So, I think your previous comment had a typo: –

            “@Rakesh, No, one does need to be KYC compliant for buying insurance.”

            You meant “does not”?

          • Vivek K says

            @Rakesh

            Even I had shortlisted Bajaj earlier but when I saw the comparison done by medimanage, Apollo did look better. I shall try to consolidate the article this weekend and then you can take a call.

  17. Rakesh says

    @Vivek,

    Thanks Vivek, Hmm, interesting. A normal reader shortlisted Bajaj, an aspiring CFP went with Apollo and a CFP opted for TATA. It would be great to have comparison of all the above products.

  18. Avinash says

    Hello Sir
    I don’t get the acknowlegement letter from the ICICI bank of KYC letter and my status is shown as verified .Sir what is the next step for to get the kyc ?

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