KYC is an acronym for- Know Your Customer. It allows banks to understand and know their clients and their financial dealings in a better manner. This enables them to serve their clients in a superior way and also helps to manage risks sensibly. KYC forms for mutual funds are available with CAMS or CVL.
You can download CVL KYC form for mutual funds here
You can download CAMS KYC mutual funds here
The main reason due to which KYC was introduced is it helps to establish the identity of the client. This simply means that the banks can identify the customer by verifying his/her identity by utilizing reliable, authentic, independent source documents, information or data related to the customers. The bank will require authentic identification data so that it can verify the identity of the customer. This also includes a recent photograph along with address proof of the customer. This process will hold true for individuals, mandate holders and joint account holders as well.
The bank will retrieve the following data for non-individuals:
- Verification of the legal status of the entity/person
- Verification of the authorized signatories
- Verification of the identity of the Beneficial controllers or owners of the account
These data are important so as to make sure that enough information is available about the nature of business or employment that the customer does or expects to handle and also the purpose of the account.
The main purpose of KYC is to prevent banks from being taken advantage of, by criminals and other negative entities for money laundering.
Banks formulate their KYC policies that incorporate the following four key elements:
- Risk management
- Customer Policy
- Monitoring of transactions
- Customer Identification Processes
Is KYC new?
KYC requirements are not something new. They were introduced in 2002 by the Reserve Bank of India (RBI). KYC guidelines have been made mandatory for every bank in India. Banks take KYC documents according to the rules and guidelines laid down by the RBI periodically. RBI has revised the KYC guidelines according to recommendations of the Financial Action Task Force (FATF) on Combating Financing of Terrorism and on Anti-Money Laundering standards and also improved the KYC standards according to the international benchmarks.
KYC is mandatory
KYC is a legal and regulatory requirement. It is regulatory because the Reserve Bank of India (RBI) issued the terms of guidelines on November 29, 2004, related to Know Your Customer (KYC) Standards- Anti-Money Laundering (AML) Measures. It states that each and every bank in India is required to frame a comprehensive and exhaustive policy framework which covers KYC Standards and AML Measures.
KYC has a legal perspective as well. The Prevention of Money Laundering Act (PMLA) introduced in 2002 but came into force on July 1, 2005, states that banks, intermediaries, and financial institutions must follow some of the minimum standards of KYC and AML as per the Act. There are certain “rules” under the Act that were developed and published in the Official Gazette. These banks, intermediaries, and financial institutions must abide by these “rules” as well. The PMLA is the core of the legal framework to combat the issue of money laundering. It also requires that banking companies, intermediaries, and financial institutions report suspicious transactions etc.
When does KYC apply?
KYC takes places in these stages:
- When a customer needs to open a new account.
- When a customer needs to open a subsequent account because the required documents according to the latest KYC standards were not submitted while opening the first account.
- When a customer wants to avail the Locker Facility and the all the necessary documents are not there will the bank for the Locker facility holders.
- When the bank thinks that it needs to acquire further information from the existing account holders or other customers.
- Whenever there is a change in signatories, beneficial holders, mandate holders etc., KYC applies.
Apart from these general circumstances, KYC is also conducted for non-account holders who approach the bank for high-value transactions.
Contact point in the Bank for KYC purposes
The Relationship Manager or the officer who opens a customer’s account is the contact point for that customer in the bank. The officer who is your correspondence for transactions is also your contact point for KYC processes in the bank.
Required KYC documents not available
If any customer refuses to submit the required KYC information of documents to the Bank, the bank has the right to refuse to open a new account for prospective and new customers. The Bank is entitled to discontinue or terminate its relationship with the existing customer if you do not provide all the necessary information or KYC documents.
But there is some flexibility provided to the customers who are unable to yield the necessary documents and KYC information as per the RBI DBOD issued on August 23, 2005.
Customer Identification Procedure: According to the RBI mandate, the customers must provide the following relevant documents and the bank must verify the following features.
- Individual accounts
- Legal name along with any other names used
- Permanent address
- Accounts of companies
- Name of the company and its registration details
- Its registered address
- Operating address
- Contact no and fax no
- Accounts of partnership firms
- Proof of Legal Name
- Registered Address proof
- Operating address proof
- Contact no- telephone and fax of firm and partners
- Names of each partner along with their address
- Accounts of foundations and trusts
- Names of trustees, beneficiaries, settlers and signatories
- Fax and telephone numbers
- Names and address of the managers, founders, beneficiaries and directors
E-KYC for Mutual Fund Investments
- For E-KYC, first, log into the KRA website and feed in your basic details which are the required KYC information. It includes email id, AMC name, PAN number, bank name, mode of holding, tax status, and date of birth.
- After this step, your KYC compliance status is shown. If you are not KYC compliant, enter your Aadhaar card number along with the registered mobile number.
- After this, you will receive an OTP on your registered mobile number. Enter that on the Aadhaar authentication screen along with pin code.
- Next, you need to upload a copy of Aadhaar card. Make sure that the copy is self-attested.
After successful verification, the investor can execute transactions in mutual funds.
Only customers with a single mode of account holding can avail this facility.