Understanding the KYC Process

What is KYC and why is it important?

The full form of KYC is ‘Know Your Customer’ It is a verification process, officially mandated by the Reserve Bank of India, that allows an institution to confirm and thereby verify the authenticity of their customer. This authenticity is to be sure of the identity and the address of the customer. To verify their identity and address, a customer of the financial service will be required to submit their KYC documentation before they begin investing in a variety of instruments like fixed deposits, mutual funds, and bank accounts through the portal of the financial institution.

One of the main reasons why the KYC verification process is important is that it is quite good at ensuring that financial bodies are not being used to carry out money laundering activities of any kind. Money laundering typically happens unbeknownst to the financial authority whose platform is being used for such activities. With KYC online verification and offline KYC authentication in place, financial authorities like banks and trading platforms can catch any potential money laundering rings.

Another reason why the KYC verification process is important is that there are many non-individual customers that use financial services like trading, mutual fund investment, and more. With KYC, banks, and financial institutions, and brokerages, among others have the right to verify the legal status of that entity. This can include cross-checking their operating address and verifying the identities of their beneficial owners and authorized signatories.

How Does KYC Work?

Now that we’ve addressed the question of what KYC is, here’s how KYC works. If you’re curious about how to do KYC for mutual funds’ investments, here’s your answer. Similar to the manner in which traditional banks used to verify an identity, online KYC process is carried out without the hassle of having to visit a kiosk in person. The digital KYC process is as follows:

1. Collection of Information

The very first step in the KYC procedure is to collect any personal information about the customer. Whether this information is correct and updated will depend on the due diligence of the applicant. They are required to fill out an online KYC registration form on whatever portal they wish to carry out financial transactions through.

2. Ask the user to Upload an Evidence

The second step in the KYC process comes after the information of the applicant has been collected via a form. The applicant will now be required to validate the information they put in the form with relevant documents showing the same information. These KYC documents need to be uploaded as scanned copies of their original onto the website. These documents serve as evidence proving that the prior information entered by the user is not fake and holds its authenticity to date. 

3. Verification of Information

Once the documents have been uploaded by the user as proof, the template for the documents is both identified and examined against various checks. This procedure is carried out to ensure that the document has not been tampered with in any manner. Digital tampering via photoshop and the like is very common and fake documents that aren’t checked for this may go unnoticed by authorities. Hence, this is the final layer of scrutiny that a person’s application goes through for the digital KYC process. 

Once the document is validated, data is then extracted from the documents. This can be done in the following two ways.

• Data can be directly extracted through the OCR. In this method, the system will directly extract the applicant’s data from their documents such as their identity and address proofs. The system will then check for anomalies in the information so it can validate whether it is authentic. There is also data extraction that is carried out without the OCR.
• In this method of data extraction, the applicant will be required to manually enter their information into the application’s portal. The system’s IDV solution will cross check the information entered by the user against the information present on the uploaded documents. 

Hence, the above three points are essentially how the online KYC registration process works. However, you can just as well get our KYC done offline. The KYC procedure to do so is as follows:

Offline KYC Verification Process

When carrying it out offline, the KYC process steps are pretty much the same as the procedure online. However, one core difference is that you will require physical copies of all documents and application forms. 

• Firstly, download, print, and fill out the KYC form. You can also receive an official copy of this application form from a mutual fund house, KYC kiosk, or the like.
• Within the form, keep in mind that the information you mention is updated, spell checked, and avoid missing any boxes. In this form, you will be asked to give your Aadhar and PAN details so ensure the numbers for both are filled correctly.
• Once the form is completely filled, visit the nearest KRA so you can submit your application in person. Ensure you keep the following documents handy when visiting the KRA.
• You will be required to submit proof of your identity and proof of your address with your application form. Hence, ensure you take a xerox copy of these documents beforehand and attach them to your application form when you go to submit it. 
• In addition to identity and address proof as well as your application form, at some mutual fund houses or kiosks, you may be told to give a biometric scan as well. This will involve fingerprints, handprints, and in some cases a photograph as well. 
• After your form is submitted and your biometrics are done, you will receive an official application number that will allow you to check the status of your KYC verification.

Keep in mind that the offline KYC procedure takes around one week to be completed. The online KYC registration may take a much shorter time period, but this can vary based on a slew of factors such as whether or not there were any errors, inconsistencies, or ambiguities in your application form. Hence, ensure your form is correctly filled with all the latest information.