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What is KYC

The word KYC means Know Your Customer. It is supported by procedures in place to verify a customer and to confirm his identity. One of the main reasons for having KYC in place is to tackle terrorist financing and anti-money laundering.  In the current era of hightened terrorist threats, KYC measures are of paramount importance. Through this article I want to assist the readers to comply with associated KYC requirements, specially with regards to capital markets in India.

 

Current Regulatory Requirements

The primary regulator for KYC with regards to Capital Markets is SEBI (Securities and Exchange Board of India) and time to time SEBI comes up with revised guidelines to enforce / strengthen the KYC process. The latest guidelines were published in January 2012 whereby the regulator proposed a uniform KYC norm across all SEBI registered intermediary such as Mutual Funds, Portfolio Managers, Depository Participants, Stock Brokers, Venture Capital Funds, Collective Investment Schemes, etc. This was done to ease investor worries whereby they were asked to comply withe repetitive rounds of KYC for each of the intermediaries. Now if an investor complies with uniform KYC with any of the intermediary, they would not be required to do KYC for any other intermediary as the KYC details would be verifiable from a common source.

 

High Level Process

On a high level the process can be broken down into following six steps :

1. Download appropriate form for KYC

2 . Fill the form and attach appropriate documentation;

3. In-person verification (IPV) to be performed on the KYC form by any Mutual Fund house, RTA (on behalf of AMCs) or a KYD-compliant distributor.

4. Submit the form with the documentation to any SEBI registered intermediary such as Mutual Fund offices.

5. These documents will be forwarded by the intermediary to the KYC Registration Agency (KRA) who would complete the process.

6. KRA will send a confirmation letter to the investor within 10 days.

 

KYC Application Forms

The application forms are dependent upon the type of counterparties. These forms can be downloaded from CVL’s Website. Basically they are categorised into :

1. KYC form for Individuals – This form is for all general investors of Individual category.

2. KYC form for Non Individuals – This form is for non-individual investors like limited companies, HUFs, trusts, etc.

3. KYC Change Form. – If you need to change any of your KYC details, you need to use this form.

 

Supporting Documentation

This is perhaps the most searched item for KYC process. Basically, investors are required to submit proof of identity and a proof of address. Permanent Account Number (PAN) is mandatory for all KYC applications unless the application is falling under the exempted category.  The list of acceptable documents are large, however the most commonly used documents are PAN card, Passport, Driving Licence, Voter ID card.

Acceptable Proofs of Identity

  1. PAN card with a photo;
  2. Unique Identification Number (UID) (Aadhaar) / Passport / Voter ID card / Driving license.
  3. Identity card/ document with applicant’s Photo, issued by any of the following: Central/State Government and its Departments, Statutory/Regulatory Authorities, Public Sector Undertakings, Scheduled Commercial Banks, Public Financial Institutions, Colleges affiliated to Universities, Professional Bodies such as ICAI, ICWAI, ICSI, Bar Council etc., to their Members; and Credit cards/Debit cards issued by Banks.

Acceptable proofs of address

There are a large number of acceptable documents which can be used for the purpose of an address proof. They are enumerated below (copied from the KYC form):

  1. Passport/Voters Identity Card/Ration Card/Registered Lease or Sale Agreement of Residence/Driving License/Flat Maintenance bill/Insurance Copy.
  2. Utility bills like Telephone Bill (only land line), Electricity bill or Gas bill Not more than 3 months old.
  3. Bank Account Statement/Passbook – Not more than 3 months old.
  4. Self-declaration by High Court and Supreme Court judges, giving the new address in respect of their own accounts.
  5. Proof of address issued by any of the following: Bank Managers of Scheduled Commercial Banks/Scheduled Co-Operative Bank/Multinationa Foreign Banks/Gazetted Officer/Notary public/Elected representatives to the Legislative Assembly/Parliament/Documents issued by any Govt. or Statutory Authority.
  6. Identity card/document with address, issued by any of the following: Central/State Government and its Departments, Statutory/Regulatory Authorities, Public Sector Undertakings, Scheduled Commercial Banks, Public Financial Institutions, Colleges
    affiliated to Universities and Professional Bodies such as ICAI, ICWAI, ICSI, Bar Council etc.,to their Members.
  7. For FII/sub account, Power of Attorney given by FII/sub-account to the Custodians (which are duly notarized and/or apostiled or consularised) that gives the registered address should be taken.
  8. The proof of address in the name of the spouse may be accepted.

 

For NRIs /Foreign National

NRIs face considerable challenge at times as they fall short of the documents required for KYC in India. Non Resident Indians are required to mandatorily provide a copy of their :

1. Indian Passport / OCI / PIO Card

2. Overseas Address proof.

3. India address proof (one of the documents mentioned above) if they state India as their address;

4. PAN card.

It is advisable to also submit your overseas passport along with your PIO / OCI card.

 

PAN Exempted categories

(source KYC Individual Form)

The following investors are not required to submit a PAN copy :

  1. Transactions undertaken on behalf of Central Government and/or State Government and by officials appointed by Courts e.g. Official liquidator, Court receiver etc.
  2. Investors residing in the state of Sikkim.
  3. UN entities/multilateral agencies exempt from paying taxes/filing tax returns in India.
  4. SIP of Mutual Funds upto Rs 50,000/- p.a.
  5. In case of institutional clients, namely, FIIs, Mfs, VCFs, FVCIs, Scheduled Commercial Banks, Multilateral and Bilateral Development Financial Institutions, State Industrial Development Corporations, Insurance Companies registered with IRDA and Public Financial Institution as defined under section 4A of the Companies Act, 1956, Custodians shall verify the PAN card details with the original PAN card and provide duly certified copies of such verified PAN details to the intermediary.

 

In Person Verification (IPV)

This is a new requirement brought in by SEBI with effect from Jan 2012. Essentially it requires an investor seeking his KYC to be seen in person by a SEBI authorised representative. There is are a wide range of such authorised personnel such as bank officials, mutual fund sales offices and AMFI certified mutual distributors. Such personnel needs to certify on the KYC form mentioning that the investor has been seen in person. While this sounds easy, most of the times it is the NRI community which faces difficulty to get their KYC done while being physically present outside India. Also, it makes it challenging for busy professionals to visit the branch of a mutual fund house or a bank to get themselves IPV’d.

 

Checklist for Investors

Please ensure that :
1. The form is filled in blank ink;
2. Form is completed in all respects and signed;
3. Paste your recent passport size photograph and sign across the photograph.
4. Attach appropriate documents and self attest each of the documents.
5. Take original documents with you for verification against photocopies;
6. Get In-person verification (IPV) process completed by a Mutual Fund, RTA or KYD-compliant distributor.
7. Submit the form.

 

Accompanying Investments

Unlike earlier whereby an investor could have requested for their KYC without investing in a fund, now the investor would have to mandatorily submit an investment along with their KYC form. The rationale behind this step is to avoid investors who want to be KYC’d without any investments. This avoids some costs for mutual fund intermediaries who were subject to KYC costs without any associated benefits (mutual fund investments). The filled KYC forms, along with the investment forms can be submitted with a mutual fund sales office, CAMS or Karvy’s office and banks selling mutual funds.

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