5 Things No One Told You about KYC

Does the term KYC get you shifting in your seat? Don’t worry! The term Know Your Documents (KYC) may sound intimidating but there are some questions that are usually dodged or aren’t very clearly explained to you as a customer. Here are some things nobody tells you about KYC documents.

KYC documents are important for anyone in the world of payments, banks and business. KYC is a reference to the regulated bank practices carried out to verify customers identities. Companies use KYC documents to process, verify, collect, and classify a customer’s identity.

What is E-KYC?

Yes, there is an online KYC procedure to avoid the physical effort of downloading the form and going to a branch. Electronic KYC (E-KYC)  is possible for anyone with a valid Aadhaar card. There are two main methods to use for e-KYC; biometric and OTP. To use the e-KYC service, you have to authorise the Unique Identification Authority of India (UIDAI), to release your identity or address through a biometric authentication to the bank branches or the business correspondent (BC) who helps you with this process.  The UIDAI  transfers your data online to the bank/BC. The information you provide though e-KYC will then be considered as an officially valid document, a valid process for verification.

How does KYC stop Money Laundering?

In the world of online transactions, Money Laundering is a risk that must be kept careful track of. Thanks to India’s effective KYC programme, this risk is handled through clear foolproof identification of a customer. The process of KYC allows companies to know who they are doing business with, keep a track of all business clients and in turn, it also protects individuals who can be privy to financial crime practices.

What process do you take up in case you received an email stating that your KYC registration has been rejected?

You might be a little surprised to see this question here, but often, a lot of people get vague responses from providers in the event of their KYC form getting rejected. There are a few cases you can consider, in case this happens to you.

  • A blurry or old photo. The photo is your ID. This could be a drivers license, a passport, a government-issued photo ID. You need to make sure the photo is clear and recent for the verification to come through.
  • The name used in the KYC registration is different from the ones in your legal documents. As Indians, we are prone to getting a little confused with our family name and our surname. Make sure you use the name that is present in all your legal documents only.
  • Your ‘proof of address’ is incorrect. Check your address proof in all your legal documents and use only that for your ‘proof of address’ documents.

Do you have to complete the KYC in order to invest in mutual funds?

Yes, if you are investing in mutual funds for the first time, you need to comply with the KYC norms, just once. The Prevention of Money Laundering Act requires first-time investors to comply with KYC registration rules to track the legality of funds used for investments. Complete your KYC process by downloading the KYC form, available on websites of all the fund houses.

There are three ways you can complete your KYC process:

  1. Download the forms and other required documents and visit a nearby KYC branch.
  2. e-KYC (OTP): A paperless process you can do online. Choose the fund house you want to invest in, visit the website and register your KYC details. Enter your PAN details and choose the option that states that you are not KYC-compliant. You will then be asked for a few personal information like mobile number and you will receive an OTP. enter the OTP from your phone and your KYC is complete. Note: You can only invest up to INR 50,000 per fund house each year, with this method.
  3. e-KYC (biometric): If you have your Aadhar number, then you can invest more than Rs. 50,000 using this method. A distributor is present to help you with this method. They will bring a mobile phone and a separate fingerprint mapping device. Scan your fingerprint to the device, which is then connected to your Aadhar database through the KYC app. You will enter a few basic personal details and once the fingerprint matches, your photo pops up on the mobile phone screen (the photo from your Aadhaar records). The photo is proof that your KYC is approved and you can invest in mutual funds.  Note: There is no limit on the amount you wish to invest here.

What is a KYC review?

KYC regulations set by the government require financial institutions to regularly review their entire book of clients and customers. While financial institutions ideally take a risk-based approach to review customers and clients, this method can vary depending on the region. There are 3 tiers of customers who are reviewed depending on risk tolerance and regulatory guidance.

  • High-risk customers: they are reviewed on a bi-annual or annual basis.
  • Medium risk customers: they are reviewed annually or bi-annually.
  • Low-risk customers: they are reviewed every 3-5 years.

What is a KYC remediation?

Know Your Customer (KYC) remediation is very important for any company that wants to protect itself from corruption, money laundering and terrorist financing.  It differs from a KYC refresh exercise. Remediation fundamentally involves correcting a legacy problem where a company could possibly at risk. This will help clients whose bank account needs to be changed, who legally changed their passport details, updated proof of address etc.

Bonus: All businesses need to adhere to KYC compliances, and the process is not as tedious as it may seem. If you are looking to understand what basic KYC documents your business would need to produce when approaching a payment gateway or a bank, Instamojo has the answers for you.

Instamojo allows you to start collecting payment in just 5 minutes. Just update your PAN card and bank account details and you’re set.


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