The Reserve Bank of India made KYC documentation compulsory for all financial institutions operating under its ambit since 2004. This rule was implemented to reduce financial crimes such as money laundering or fraud. KYC documentation enables financial institutions to verify the identity of customers who carry out any kind of financial transactions.
What is KYC?
KYC, an abbreviated form of ‘Know Your Customer’, is a highly effective procedure for preventing major financial crimes.
In simple terms, KYC is the verification process that enables institutions to confirm the authenticity of their customers. Institutions will verify the address and the identity of a customer through the KYC process.
Today individuals need to submit their KYC documents to initiate any financial transactions and avail credit, including a personal loan. Moreover, the KYC process is also essential for investing in various instruments like mutual funds, fixed deposits, the opening of bank accounts, and much more.
With the advancement of technology, individuals can also verify their customer credentials through a paperless, virtual process called e-KYC. This e-KYC verification online is done based on the information on one’s Aadhaar card.
What are the different types of KYC?
There are usually 2 types of KYC verification processes that one can choose while availing of financial service. These are as follows:
- In-person verification
As the name suggests, in-person KYC verification takes place offline. If individuals intend to invest more in mutual funds in a year, they need to opt for in-person KYC verification. For this, the individual can either visit the nearest Aadhaar-based KYC kiosk or go to the mutual fund office to verify his credentials with Aadhaar biometrics.
Alternatively, you can also call an Aadhaar executive to your home or office to complete the verification procedure. There are some mutual fund houses that allow in-person KYC verification through video calls where you have to display the original Aadhaar card and address-related documents.
2. Online Aadhaar-based KYC verification
The online KYC verification process can be done virtually and is a highly convenient method for most people today. For this type of KYC verification, individuals need to upload a scanned copy of their Aadhaar card. However, if they wish to invest in a mutual fund with online KYC verification, they can invest only up to Rs. 50,000.
Importance of KYC verification
KYC is an essential procedure to protect the country and its citizens from major financial crimes. One of the most significant importance of KYC is that it ensures that the country’s financial institutions are not made involved in illegal activities like money laundering. These activities usually take place without the knowledge of those institutions. With KYC verification, respective financial institutions can keep track of the activities of their customers.
Moreover, there are various non-individual entities that use various financial services like trading or mutual fund investment. Brokerages and other financial bodies can verify the identity of these customers through KYC. Additionally, it also ascertains the required verification process of your personal loan.
Essential documents required for KYC
One requires mainly two types of documents for completing KYC verification. These are as follows:
- Identification proof
Documents required for identification proof include:
- Aadhaar card
- Voter ID card
- PAN card
- Passport
- Driving license
- Residence proof
Some identification proofs do not include the residential address. In that case, one has to submit residential proofs such as:
- Electricity bill
- Gas bill
- Legal rental agreement
- Credit card bills, etc.
Notably, KYC documents are one of the most important documents required while applying for a personal loan. These are crucial for hassle-free loan approval. Successful submission of KYC documents will help borrowers in the verification process of personal loans.
Before applying for a personal loan, one must keep these KYC documents handy. You will either need to upload them or hand over the representative from the financial institution while applying for a loan.
Providing the proper KYC documents, along with other necessary documents, is one of the ways to increase the chances of getting a personal loan.
Apart from offering a smooth verification and quick approval of loans, popular NBFCs like Bajaj Finserv provide various pre-approved offers to customers that help in streamlining the loan application process. These offers are available on several financial products like personal loans, business loans, and more. You can check your pre-approved offers by entering basic contact details.
KYC documentation is an essential step taken by the government to curb financial fraud. It is essential to follow the procedures while availing of any kind of financial services in India.