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Following content explains what KYC means. Importance of Know Your Customer, applicable areas and details on application procedure are all briefed in the content.

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What is KYC (Know Your Customer)

Know Your Customer (KYC):-
Finance is one of the basic sources of every act in the world today. Institutes that bank money or trade financial instruments or, are into any other relevant business the institute does have a set of responsibilities in knowing their customers. This set of responsibilities based on need of a country led to the birth of KYC.

KYC will be a set of procedure that an individual, a group or any organization will undergo while trading with any financial institute. Identity proofs, proof of address, legal status, verification of signature are few of the processes that a person will undergo in KYC.
Reserve Bank of India, the regulatory body of financial institutes in India made KYC compulsory to all banks. This order was passed in the year 2004 and according to it the objective of KYC is to prevent financial institutes and relevant companies from being used by terrorists and money launderers in a criminal act.
Need for KYC:-
Financial Action Task Force (FATF) spotted the need for much effective guidelines for KYC. These guidelines were need of the hour to make the following acts more effective.
  • Combating Finance of Terrorism (CFT)
  • Anti Money Laundering act (AML)
Based on recommendations of FATF a circular was passed in the year 2004 and recently updated in 2009 that has set of norms, which banks had to follow for KYC.
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.
Documents required and procedure for KYC:-
In a bank to undergo KYC a person will have to meet the relationship manager or an official person whom you interact with during transactions of your account.
KYC for investing in a mutual fund can be done by downloading the application form from Association of Mutual Funds of India (AMFI) or Central Depository Services Limited (CDSL) website. The filled application form with necessary documents has to be submitted at Point of Service (PoS). The documents required in general are mentioned below.

For an individual
  • Proof of identity – PAN card, passport, driving license, ration card (as per bank/PoS expectation)
  • Proof of address – bills of utilities like telephone, LPG, electricity etc., bank statement, ration card (as per bank/PoS expectation)
  • Proof of income (for mutual funds)
KYC - a requirement or a preference:-
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