LEARNING CENTER
Level | Beginner
WHAT IS INFLATION AND HOW DOES IT AFFECT YOU?

To invest in mutual funds, you need to adhere to two key requirements:

1.You need a Permanent Account Number, or PAN and
2.You need to complete the ‘Know your Customer’ or KYC formalities

About PAN
PAN is a 10-digit alphanumeric code issued by the Income Tax department. It acts as an identification document of an Indian citizen, especially those who pay Income Tax. This unique identifier, issued to all judicial entities identifiable under the Indian Income Tax Act 1961. All entities such as companies, partnership firms, etc. and individuals are required to quote their PAN in the process of several financial dealings and transactions such as purchase or sale of property, payment of tax and purchase and sale of stocks or mutual fund units.

How can you obtain a PAN Card?

  1. Log on to the official website of the Income Tax department or National Securities Depository Limited and download Form 49 (A) which is a PAN application form.

  2. Fill in the designation and code of the concerned Assessing Officer of the Income Tax department in Form 49A which you can get from the IT PAN service centres mentioned on these websites.

  3. You will then need to provide proof of identity and residence.

Identity proof (anyone) Residence proof (anyone)
Passport Passport
Voter's ID Voter's ID
Driving license Driving license
School leaving certificate Electricity bill
Matriculation certificate Telephone bill
Degree from a recognised educational institution Depository account
Depository account Credit card 
Credit card Bank account
Bank account Ration card
Water bill
Employer's certificate
Ration card
Property tax assessment order
Property tax assessment order
Rent receipt
Certificate of identity signed by an MP/ MLA/ municipal councillor/ gazetted officer
Certificate of address signed by a MP/ MLA/ municipal councillor/ gazetted officer
  1. You will also need to attach a recent colour photograph (stamp size: 3.5 cm x 2.5 cm) on the form

  2. Fill in all the other relevant details and submit the form at any of the IT PAN service centres or TIN facilitation centres. The address of these centres will be listed on the websites mentioned above.

  3. The PAN card will be couriered to the mailing address mentioned in your application within a month.

About KYC
When you invest in a mutual fund or any other financial instrument, the manager and custodian of your investment needs to have basic information about your identity. KYC (Know Your Customer) is a process through which authorized institutions obtain and maintain identity information of investors.

The main purpose of KYC is to trace the flow of money in order to detect instances of fraud and money laundering. Simply put, money laundering is an offence in which illegally-earned income or black money is surreptitiously routed in the official financial systems with an aim to make it seem legitimate. The laundered money may either be generated from illegal activities (such as smuggling, extortion or fraud), or may be a part of black money i.e. income concealed to evade tax. Banks and financial institutions are obligated to keep a check on such suspicious transactions. KYC enables them to trace and monitor the source and destination of such transactions.

KYC is mandatory for investing in mutual funds and is a one time process, that means once you have registered your KYC details with any of SEBI registered intermediary, you can invest in products of any mutual fund. Investors need to update their KYC details in case of changes in address, phone number or any other information.

How can you complete your KYC?
KYC has two components

a) Verifying your identity
b) Establishing your location

  1. You can download the KYC form by clicking on this link.
  2. You need to furnish proof of your address which is stated in various government-issued documents:
Identity and residence proof (anyone)
Passport
Voter's ID
Driving license
Aadhar card
  1. You will also need to attach a recent colour photograph (stamp size: 3.5 cm x 2.5 cm) on the form along with a copy of your PAN card.
  2. Fill in all the other relevant details and submit the form at any of the SEBI registered intermediary (broker, Depository Participants or Mutual Fund point of sales and service).

KYC not only helps the financial regulators and IT department to keep track of investors’ financial transactions, but also protects investors from fraudsters who steal identities to launder money or indulge in illegal activities.

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Key Takeaways

  1. Two things are very important for investment in mutual funds - PAN and KYC.
  2. PAN is a 10-digit alphanumeric code given by the Income Tax department. You have to apply for the PAN using Form 49A.
  3. KYC has two key roles to play: verifying your identity and establishing your location.