KYC Regulations for Investors

Operational Aspects of Investment Management

• Learning Objectives: Understand investors, the investing process, Demat/Remat, Power of Attorney, Non-Resident Investor (NRI) processes, various payment instruments, and documentation for financial advice.

Investors and the Investing Process

• Individual Investors: Resident, minors, Hindu Undivided Family (HUF), Non-Resident Indians (NRIs), and Foreign Portfolio Investors (FPIs) are all individual investors. These investors typically make smaller investments and are geographically spread
• Institutional Investors: Companies, trusts, charitable organizations, societies, financial institutions, portfolio investors, pension funds, insurance funds, and banks are included. These investors operate in a more formal process to make investment decisions. Decisions are authorized by the governing body like the board or trustees

Client Onboarding Process

• Investor Requirements: Investors must meet requirements for KYC compliance, specific to certain products as specified in the terms of offer.
• Specific Conditions: For instance, a public issue will have a set subscription period
• Mandatory Requirements: Need a Permanent Account Number (PAN) given by the Income Tax Authorities for most transactions

Regulatory Requirements

• PAN (Permanent Account Number): A mandatory requirement for most financial products to access services like banking, insurance, and financial products
• Capital Market Investments: PAN details required for demat and physical investments, deposits above a certain amount, and insurance premiums above a threshold

Mandatory Investor Information

• Investor Identifying Information: Names, addresses, bank/account numbers, and any information required by the financial product or service offered.
• Joint Holders: For some investments, multiple joint holders are permitted with a maximum number defined by the specific instrument.
• Signatures: Signatures are verified for every transaction. For multiple holders, all signatures must be properly documented.

KYC Compliance

• KYC: Mandatory step for investors to verify identity and address as per Prevention of Money Laundering Act (PMLA).
• KYC Verification: The KRA (KYC Registration Agency) or UIDAI (Unique Identification Authority of India) verifies identity and address details for investor’s investments in capital markets

Investor Folio or Account

• Folio/Account Number: Assigned at initial purchase or opening to maintain transaction history and investor identity.
• Customer Records: The investment product or service provider captures details for an investor record.

Dematerialisation and Re-materialisation of Securities

• Dematerialisation: Process of converting physical securities to electronic form using depository services (like NSDL or CDSL)
• Rematerialisation: The reverse process, converting electronic securities back to physical form

Power of Attorney (PoA)

• Grantor: The primary investor authorizing the actions
• Attorney: The individual who is authorized to conduct investments

Account Opening Process for Non-Residents

• Non-Resident Indian (NRI): A citizen or person of Indian origin not residing in India. An individual is considered a resident based on number of days in India during a specific time period.
• Repatriation of Funds: Repatriation rules vary depending on the source of funds used to invest in Indian exchanges, so its critical to understand whether funds originate from abroad, domestic currency, or other sources.

Payment Methods

• Local Cheques, Demand Drafts: Common methods for payments, but not every type of transaction allows for these modes
• Digital Payments: Options like NEFT/RTGS, electronic bank transfers, or payment apps are available
• ASBA (Application Supported by Blocked Amount): For primary market investments, funds are blocked in a bank account until allotment is confirmed