Just like we have a verification process for our social media profiles to verify our identity, similarly KYC or Know Your Customer was introduced by the Reserve Bank of India as a part of their regulatory process. This was done to prevent incidents of fraud. KYC is mandatory for anybody who wants to initiate any kind of financial transactions such as making payments or even investing.
In 2002, the RBI made it mandatory for all financial institutions to verify the details of the customers transacting with them. Customers are required to complete the KYC procedure for verification, and if they fail to do this, they will be unable to initiate any transactions with their bank.
While all of this might sound stressful, KYC is simple and effortless. All you need is a PAN card to help the authorities verify that you are who you are claiming to be. The financial regulatory bodies do this just to ensure that you as a customer stay protected, and do not become a victim of any fraudulent transactions.
Let us understand this in a little more detail.
KYC or Know Your Customer is a process to identify and verify a customer. This is a mandatory process when you open a bank account, or set up an account to start investing.
KYC is also known as an antimony laundering process because it helps in the prevention of fraud.
Some quick things to know about KYC:
At the time that KYC was introduced, there was an increase in fraudulent activity in the financial market. Thus, RBI made it mandatory for financial institutions to strictly implement the Know Your Customer process to know all of their customers. With a complete KYC application, financial institutions will be able to know the background of their customers. Not only individuals, but the KYC process also safeguards online businesses and companies across the globe.
Now that you know why it is important to complete the KYC process let’s talk a little more about you can complete the verification process.
There are two ways in which customers can get KYC verified;
In-Person KYC verification is required for customers who want to invest more in a specific fund every year. In this type of verification process, the customer needs to visit the KYC centre to get the verification process done.
The customer can also opt to get the verification process done at their home or their office. Some fund houses also give customers the choice to get the verification done via a video call. For video verification, a customer is required to show his/her identity proof and address with a pin code. In-person verification allows a customer to invest more than Rs. 50,000 every year per fund.
Aadhaar-based KYC verification is done through a customer’s Aadhaar card or PAN Card details. This type of KYC verification restricts one to invest till a particular amount, which is up to
Rs. 50,000 every year per fund.
KYC is a standard requirement globally within the investment industry. It’s a process from industry regulatory bodies to protect all stakeholders within the industry and it’s in the best business interest of any investment firm or investor, especially if there is a lot of money at stake. These rigorous checks can feel burdensome as a process; however, they create a secure and trustworthy environment to enable financial or investment activities with the company. KYC is an important tool as it looks after the financial bodies and keeps illegal activities in check.
KYC is essentially required if the customer wants to carry out any kind of financial transaction. After the verification process, the customer gives the financial institution that has conducted the test information about their identity, address, and financial history. This can aid the bank in knowing that the money the customer chose to invest is not one so for any money laundering related purpose.