The Reserve Bank of India has made a mandatory rule for banks, financial institutions, and other organisations to verify the identity and address of all customers who do financial transactions with them. This, to make the process easy, KYC method is used. KYC or Know Your Customer is a method through which banks or financial institutions can verify the identity and address of the individual.
What is KYC?
KYC allows an institution to authenticate the investor's identity and address. The individual has to submit its KYC before starting to invest in various financial instruments like mutual funds, fixed deposits, bank accounts, etc. KYC is done just once when the person begins to invest for the first time. KYC ensures that banks are not used for doing money laundering activities.
Why you should do KYC?
When your KYC is done, your bank gets informed about your identity, address, and financial history. By doing KYC, the banks get ensured that the invested money in the bank accounts is not for money laundering/illegal activities. Even when you desire to make mutual fund investments, KYC is mandatory. However, it is not required to do KYC repeatedly before investing in various fund houses each time.
Types of KYC
The two types of KYC are:
