What are the (Know Your Customer) KYC Documents?
"Know Your Customer" or KYC is an important term used by businesses and refers to the process of verification of the identity of the customers and clients either before or during the start of doing business with them. Banks, digital payment companies or any kind of financial institutions are now required by the RBI norms to have their customers KYC process completed before allowing them complete access to all services.
KYC is done as a precaution against illegal activities like money laundering, bribery or corruption. It helps the government and businesses keep track of such activities or suspect them beforehand. Apart from being a legal requirement, completing the procedure will also help you gain access to many of the financial company's premium products and get transactions done faster.
The Government of India has notified six documents as 'Officially Valid Documents (OVDs) for the purpose of producing proof of identity. Even when you already submit the KYC documents once, the banks can ask again as they are required to periodically update KYC records. This is a part of their ongoing due diligence on bank accounts. The periodicity of such updation would vary from account to account or categories of accounts depending on the bank's perception of risk. Opening bank account, mutual fund account, bank locker, online investing in the mutual fund or gold your KYC should be updated with bank.
Importance of KYC
KYC is important because it helps the banker to ensure that the application and other details are real. There have been instances of fraud and siphoning off of money from accounts. By ensuring the identity of individuals, it would help to prevent fraud. The Know Your Customer practice has been in vogue for many years now. It is a must and all individuals have to comply, if they wish to open an account. It is not possible to open a back account or account for mutual funds without KYC compliance.
Who needs KYC?
Those who want to open a bank account, a demat and stock trading account, open FD in another bank, would definitely need to comply with KYC requirements. You can not open any of the accounts without the Know Your Customer Documents. In fact, it is now mandatory as per guidelines from the Securities and Exchange Board of India to comply with these KYC norms before you open a demat and trading account. Banks too will not open an account unless you have the same.
Basically, there are two types of documents required to comply with KYC norms. One is “Proof of Identity” and another is “Proof of Address”.
As stated in RBI’s website, “The Government of India has notified six documents as ‘Officially Valid Documents (OVDs) for the purpose of producing proof of identity. These six documents are Passport, Driving Licence, Voters’ Identity Card, PAN Card, Aadhaar Card issued by UIDAI and NREGA Card. You need to submit any one of these documents as proof of identity. If these documents also contain your address details, then it would be accepted as as ‘proof of address’. If the document submitted by you for proof of identity does not contain address details, then you will have to submit another officially valid document which contains address details.”
Points to remember :
1. KYC is a mandatory requirement to financial institutions in India. Failure to produce necessary information or necessary documents to KYC to any financial institution will lead to
- refusal to open an account or discontinuation of existing account – for a bank
- refusal to permit for any investment – for mutual funds
2. To open a bank account, one needs to submit a ‘proof of identity and proof of address’ together with a recent photograph.
3. If you do not provide the required documents for KYC, the bank will not be able to open your account.
4. Aadhaar card is accepted as a proof of both identity and address.
For an individual :
- Identity Proof – PAN card, passport, driving license, ration card (as per bank/PoS expectation)
- Address Proof – bills of utilities like telephone, LPG, electricity etc., bank statement, ration card (as per bank/PoS expectation)
- Proof of income (for mutual funds)
For a Partnership-firm :
Certificate of Registration, Company’s PAN card, partnership deed, proofs of identity and address of partners, Resolution of board of directors to open account and identification of those who has authority to operate such account, power of attorney or authorised signatory documents if any, other documents as per individual bank’s requirement.
For a Sole Proprietorship Firm :
Certificate of Incorporation, PAN card, TIN number, telephone bill/ electricity bill, Certificate/licence issued by the municipal authorities under Shop and Establishment Act. Sales and income tax returns etc.
Applicability of KYC
KYC has to be followed by every financial institute while dealing with customers. KYC procedure needs to be adhered to by a customer during following instances
- While opening an account in a bank
- When there are not enough documents with the bank in existing account
- While investing in a mutual fund.
It is important to note that based on norms, financial institutes may ask for a mandatory KYC process in other instances too.
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