Protecting thyself with KYC compliance

Asked to submit your KYC documents while starting a mutual fund investment? Find it complicated, inconvenient and unnecessary? Ever wondered, why the asset management company (AMC) wants all that information? Well, this requirement of submitting one's identity documents is a part of a Know Your Customer or KYC guidelines by the Securities and Exchange Board of India (SEBI). The regulation is aimed at preventing dubious transactions, financial fraud and funding of terrorist activities. Essentially, this means that when you provide documents establishing your identity, you are safeguarding your own self from fraud.

What is KYC?

KYC is an industry-wide initiative and as the name indicates, it is a process through which the mutual funds verify the identity and gain an understanding of their customers & their financial dealings.

Over the last few decades, wrong and unlawful elements have manipulated the financial system to fund criminal and unethical activities. In the past, lack of personal verification during account opening has led to criminals opening fictitious accounts and trading through those accounts for illicit purposes.

Consequently, government and regulators have developed a set of guidelines to prevent and uncover such acts. As per the Prevention of Money Laundering Act, 2002, every financial institution, bank and SEBI registered intermediary is required to gather KYC information from customers for whom they are opening an account, making an investment or handling a money transfer.

Information required for KYC compliance

• Completed KYC form

• Passport size photograph

• Proof of identity

• Proof of residence

• If you are an NRI, a copy of the passport needs to be provided along with the overseas address proof

• If you are a new investor a mandatory In Person Verification (IPV) is required at the time of submission of the KYC request.

Submission of KYC documents

SEBI has created a set of independent record keeping bodies called KYC Registration Agencies (KRAs) to maintain an electronic record of investors and their KYC status. As a customer, you need to submit your data and documents only once to any one of the five KRAs (CVL | NSDL | CAMS | NSE (DotEx) | Karvy). Once you submit the KYC form and required documents to one of the KRAs, you can track the status of your registration through the KRA website. Once you have completed the KYC process, you can open an account with any other mutual fund without having to go through the process again. Thus, KYC is just a one-time requirement.

The cost of non-compliance

KYC is a mandatory requirement and non-compliance comes at a cost. No fresh investment be it a purchase, SIP registration or renewal will be accepted without the completion of the KYC formalities. In fact, non-compliance might even result in freezing of accounts

Conclusion

Providing identification information for KYC compliance may seem cumbersome but it is an important one-time activity that can now be done completely online. Remember, by becoming KYC verified, you are only enabling higher levels of security, preventing identity theft and safeguarding your own interest.

 

 

The information contained in this document is for general purposes only and not an investment advice. Readers should seek professional advice before taking any investment related decisions.

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