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KYC for Mutual Funds – Meaning & How to Do KYC for Mutual Funds in 2022

In your journey towards accomplishing financial goals, the first step is to understand what KYC is? And how to do KYC online.
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If you are a first-time investor in mutual funds, then you need to know what KYC is? And how to do KYC online or offline. Let us start with the basics by understanding what it is. The acronym KYC stands for Know Your Customer. KYC is done by financial institutions like mutual funds, stockbrokers, depository participants (DPs), banks, NBFCs, insurance companies, and other regulated entities for their customers before dealing with them. Therefore, an investor has to be compliant for investing in mutual funds.

The KYC process requires the financial institution to identify the customer it is dealing with as part of the Customer Identification Process. It does that by asking the customer to submit the duly filled form along with documents that include:

a) Photograph, 

b) Photo identity proof, and 

c) Address proof

The financial institution will also ask for additional information, including occupation, economic status, and other information.

Why is KYC needed?

Now that we know what KYC is let us understand why it is needed. As per the provisions of the Prevention of Money Laundering Act (PMLA), KYC is required. This is done to prevent money laundering activities, dubious transactions, financial frauds and combating the financing of terrorism. The financial institution keeps a record of the documents submitted by the customer. It may ask customers to update their KYC from time to time by re-submitting the duly filled KYC form and documents.

Documents required for KYC

As mentioned earlier, the customer needs to submit the duly filled KYC form along with a photograph, identity proof, and address proof. In addition, the submission of a Permanent Account Number (PAN) is required for financial transactions.

Some of the documents accepted as identity proof as well as address proof include:

a) Aadhaar card

b) Passport

c) Voter ID card

d) Driving licence

Identity proof: 

Some of the documents accepted as identity proof include:

a) PAN card

b) Photo identity card issued by the Central Government or State Government or a Public Sector Undertaking (PSU)

For identity proof, if you are submitting any document other than a PAN card, you will still be required to submit a copy of your PAN card. For example, documents like an Aadhaar card, passport, etc., are accepted as identity proof and address proof. So, in such cases, you will still be required to submit a copy of your PAN card.

Address proof: Some of the documents accepted as address proof include:

a) Electricity bill

b) Landline telephone bill

c) Consumer gas connection card/book or piped gas bill

d) Bank account statement

e) Property registration document

f) Ration card

Certain documents like electricity bill, landline telephone bill, water bill, piped gas bill, bank account statement, etc., should not be more than 3 months old as of the date of submission of KYC documents.

Please note that the above is not an exhaustive list of documents for identity proof and address proof. In addition, documents may be added/removed from the list as per guidelines from SEBI from time to time.

Role of KRAs in the process

KYC can be done directly with the mutual fund house or with a KYC Rating Agency (KRA). SEBI has centralised the KYC process with registered KRAs. KYC is a one-time process with a KRA. Once you are KYC compliant, you need not do KYC separately with each mutual fund, or stockbroker, or depository participant for investment in mutual fund schemes. Whenever you want to invest, the market participant will access your KYC details from the KRA, making mutual fund investments easier, convenient, and faster for you.

The list of KRAs registered with SEBI include:

a) CAMS Investor Services Private Limited

b) CDSL Ventures Limited (CVL)

c) DotEx International Limited (DOTEX)

d) Karvy Data Management Services Limited

e) NSDL Database Management Limited (NDML)

The procedure of doing physical KYC

To become KYC compliant and start investing in mutual funds an investor should submit the application form and the documents with any SEBI registered intermediary at their point of service centre. The application form and documents will be shared with the KRA, who will verify the details and send a letter to the investor within 10 working days. A SEBI registered intermediary will carry out the in-person verification (IPV) for new mutual fund investors. For example, a NISM/AMFI certified distributor who is KYD compliant can do the IPV for mutual fund investors. Once you are compliant, you can start investing in any mutual fund scheme.

Or you can do your KYC from the confines of your home online -

Online KYC

From April 2020, SEBI enabled online KYC by allowing completion of investor’s KYC through online/App-based KYC, in-person verification through video, and online submission of Officially Valid Document (OVD) under eSign. You can do online KYC can be done in the following manner:

a) An investor can visit the website/App/digital platform of the SEBI Registered Intermediary (RI) and fill the online KYC form and submit the requisite documents online. The online KYC form will capture details like investor name, address, mobile number, email address, bank details, photograph, etc. 

b) The documents to be uploaded include scanned copies of PAN card, address proof, signed cancelled cheque.

c) The investor’s mobile number and email address will be verified through OTP

d) Aadhaar number verification through UIDAI

e) PAN will be verified online using the Income Tax database

f) Bank account details will be verified by the penny drop mechanism. Based on the bank details in the cancelled cheque copy provided by the investor, a small amount, for example, Re. 1, will be deposited in the investor’s bank account to fetch the bank account details and name. Information provided by the investor is verified with the name and bank details.

g) If the investor provides any other Officially Valid Document (OVD), other than Aadhaar, as address proof, submitted through DigiLocker.

h) The investor can complete the KYC process by affixing online his/her cropped signature on the filled KYC form and submitting the same to the SEBI Registered Intermediary under eSign.

i) For online KYC, the Registered Intermediary can undertake Video in Person Verification (VIPV) through their App. The VIPV should be clear and still. The investor in the video shall be easily recognisable and shall not cover their face in any manner. The VIPV process shall include random question and response from the investor, including displaying the OVD, KYC form, and signature or could also be confirmed by an OTP. The RI shall ensure that the photograph of the customer downloaded through the Aadhaar authentication/verification process matches with the investor in the VIPV.

j) If the KYC of the investor is completed using Aadhaar authentication, then IPV/VIPV will not be required. If the KYC form has been submitted online, documents have been provided through DigiLocker or any other source that can verify online, then IPV/VIPV will not be required.

k) SEBI registered intermediary may implement their Application (App) for undertaking online KYC of investors. The App shall facilitate taking photographs, scanning, accepting OVD through Digilocker, and capturing video in a live environment.

By enabling online KYC, SEBI has allowed investors to complete their KYC online and avoid the hassle of visiting the intermediary’s office and submitting physical copy of documents. During the current pandemic situation, online KYC is a boon for investors.

Aadhaar based e-KYC

From October 2013, SEBI enabled Aadhaar based e-KYC. The process involves:

a) An investor needs to provide his/her name, PAN number, and Aadhaar number for e-KYC.

b) An OTP will be sent on the investor’s mobile or email id. The investor will have to authenticate by entering the OTP.

c) The investor’s PAN number will be verified from the Income Tax website.

d) After due validation of the Aadhaar number provided by the investor, the financial intermediary will receive the information about the investor from UIDAI, which will be considered sufficient information for verification.

e) The financial intermediary will upload this information on the KRA system, and e-KYC will be completed.

As per SEBI guidelines and an e-KYC verified investor can invest up to Rs. 50,000 per financial year per mutual fund. If the investor wishes to invest more than this amount, then he/she will need to go for full KYC, which involves submission of physical documents and in-person verification (IPV).

Checking your  status

You can check your status by visiting the website of the KRA, for example, cvlkra.com. Then, click on the Inquiry link and enter your PAN and submit. The status will be displayed as follows:

It shows you the status, mode, and whether IPV has been done.

How to get investment-ready with the Glide Invest App

When you start investing in mutual fund schemes through the Glide Invest App, you need to go through a one-time 5 step process and some other details as follows:

1) compliance check: You need to enter your PAN number and date of birth. Based on your PAN details, KYC compliance will be checked, and the status will be displayed.

2) Bank account details: You need to enter your bank account details like IFSC code, account number, account type. The account number will be verified, and Re. 1 will be credited to your bank account through IMPS.

3) Nominee details: You need to enter the nominee’s name, date of birth, relation with the nominee, and whether the nominee is a minor.

4) FATCA declaration: You need to make a FATCA declaration by answering 3 Yes/No questions, which include: Are you a resident of any other country? Are you a Politically Exposed Person? Are you related to a Politically Exposed Person?

5) Signature upload: You need to sign on a blank piece of paper, take a clear picture of the signature and upload it.

Once you complete this one-time process, you are ready to invest in your financial goals and accomplish them. To get started with planning for your financial goals, download the Glide Invest App from Google Play Store or Apple App Store and get started.

FAQs

Q1: What is KYC?

A1: KYC, or "Know Your Customer," is a verification method that allows a financial institution to validate and thereby verify a customer's validity. Customers' identities and addresses are verified using this authenticity. Customers of the financial service will be asked to present KYC evidence to verify their identity and address before investing in a variety of products such as fixed deposits, mutual funds, and bank accounts through the financial institution's portal. 

Q2: Is Mutual Fund KYC necessary at all?

A2: KYC is required to ensure that any investments made are legitimate, preventing money laundering and fraud in the future. It is a procedure that ensures that everyone who invests offers their true names and contact information in order to avoid any future problems. When an asset management firm requests identification documents as part of a mutual fund KYC check, it is primarily to demonstrate legitimacy. This is done to ensure that you're investing for the right reasons and that you don't have a history of defaults.

Q3: How can I get Mutual Fund KYC done?

A3: Mutual Fund KYC can be done either online or Offline. In case one is opting for Offline KYC, the following steps can be followed:

Step 1: To begin, go to CDSL's website and obtain the KYC application form.

Step 2: Fill out the form and include copies of your attested photo, ID proof, address proof, and PAN card.

Step 3: By visiting to their office, submit all of these, along with the application form, to the mutual fund firm or intermediary you've decided to invest with.

The mutual fund industry has given CDSl Ventures Ltd. permission to handle the KYC process for its investors. For the KYC requirements, CVL is in charge of 'customer profiling and record-keeping.'

When it comes to online KYC, you must complete the process with the mutual fund firm, intermediary, or platform you choose to invest with on your own.

The only difference between offline and online KYC is that you must complete the form online and upload all of the relevant papers. It saves you the trouble of having to physically go to the office only to get your authentication done.

Step 1: Go to the website of any KYC Registered Agency and fill out the form.

Step 2: Create an account and fill out the online form completely.

Step 3: Your registered mobile number, PAN Card, and other identifying information will be required.

Step 4: Self-attested documents can be uploaded online.

 A KYC identity number is received after completing the KYC process via a KRA online or offline, which one may share with the chosen investment platform to begin investing. 

Q4: Is there a way out to check Mutual Funds KYC status?

A4: Yes, there is a provision to check the Mutual Funds KYC status. There are a few simple actions you can take to check your KYC status for mutual fund investments:

Step 1: Visit cvlkra.com.

Step 2: Fill in your PAN number and any other information requested.

Step 3: You can now check to verify if your KYC process was successful or not.

Q5: After completing the KYC process, how does an investor transact in mutual funds?

A5: When investing for the first time in each folio, investors must attach their KYC Acknowledgement along with the Investment Application Form(s) / Transaction Slip(s). Mutual Funds are likely to reject Application Forms / Transaction Slips that are not accompanied by KYC Acknowledgement.

Q6: Can an investor request a change of address at the same time as a redemption?

A6: The redemption transaction will most likely be performed without affecting the change of address request if it is accompanied by a KYC Acknowledgement form.

Q7: What happens when the KYC gets cancelled or is rejected? 

A7: Further investments will not be permitted if any KYC Application Form is considered to be defective due to a lack of information or insufficient necessary paperwork.

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