Know Your Customer, commonly referred to as KYC, enables a bank or a financial institution to validate the identity of its customers. You only need to do this once as a first-time investor.

This article covers everything you need to know about KYC for mutual funds.

1. What is KYC?

Money laundering is one of the significant menaces in a country’s economy. Financial institutions and the government are always on the watch for such illegal activities. Mandating KYC formalities for banking or investment transactions is an effective way to prevent this.

2. Why is KYC Necessary for Mutual Fund Investments?

The primary objective is to ensure that the deposits/investments are made in the name of a real person and not a fictitious one. It also helps curb black money. Hence, KYC procedure is something that all mutual fund investors have to adhere to via a KYC Registration Agency (KRA). A SEBI-registered entity, KRA holds investors’ information in a single database that all fund houses and intermediaries can access. CAMS, NSE, and KDMS are a few agencies that many investors are familiar with.

SEBI later announced a common Know Your Client process to add uniformity and consistency across SEBI-registered intermediaries. It became easy for these Portfolio Managers, Mutual Fund Companies, Venture Capital Funds, and Stock Brokers, among others to curb duplication of KYC documents. This makes it easier for investors to comply with it.

3. How to Check if You are Already KYC-Compliant?

The mutual fund, if invested well, is one of the few ways to build your wealth faster. As a diligently monitored investment scheme, KYC is the first step to mutual fund investment. You may be already KYC-compliant though. It is now effortless to check your KYC status online. You can go to the official website of CDSL Ventures Limited and enter your PAN to check if you are KYC compliant or not.

4. What are the Documents Required for KYC?

Investors need to submit the following documents along with their Know Your Client application form and a passport size photograph.

a. ID Proof:

PAN Card, Driving License, Passport copy, Voter ID, Aadhaar Card, or bank photo passbook.

b. Proof of Address:

Recent landline or mobile bill, electricity bill, passport copy, recent Demat account statement, latest bank passbook, ration card, Voter ID, rental agreement, Driving License, or Aadhaar card.

5. What are the Available KYC Procedures?

The mutual fund industry has nominated and authorised CDSL Ventures Limited to conduct the Know Your Customer procedure. You can complete the process either offline or online.

a. Offline

i. Download the KYC application form from the CDSL Ventures website and fill in the details.

ii. Sign and submit a physical copy of the form to the specified authorities or intermediaries through whom you wish to invest in mutual funds.

iii. Attach the attested photocopies of ID proof, residence proof, and a passport size photo along with the form.

b. Online (Aadhaar KYC)

i. Create an account on the KRA’s official website and fill in your personal details.

ii. Provide your registered mobile number along with their Aadhaar card number and verify using OTP.

iii. Upload a self-attested copy of e-Aadhaar and accept the consent declaration terms for the eKYC.

c. Aadhar-Based Biometric

If you have Aadhaar card, then you can opt for Aadhaar-based KYC. You may request an official from the fund house or agency to visit you to collect the details. Submit a copy of your Aadhaar to the fund house or broker or distributor, and they will map your fingerprints on their scanner and link it to the Aadhaar database. By matching the fingerprint to that in the database, your details there will pop up. This means that they have validated your KYC before proceeding with your mutual fund investment.

6. How Can You Do eKYC With ClearTax?

To do your KYC process manually, an investor needs to visit a KRA for the paperwork or at least send the documents by post, this can be tedious and will take at least seven working days. However, you may complete your KYC online with ClearTax Invest, which will take only two minutes. The entire investment process will take only 7 minutes. The company will not use the information you provide for any other purpose.

In short, KYC should precede your mutual fund investment and is an essential criterion. Do this once as a first-time user, and you will be KYC-compliant for all your future mutual fund transactions.