Most of the times, banker or your Insurance Advisor or Mutual Fund Advisor must have asked you to send a copy of cancelled cheque. You might wonder – What is this cancelled cheque & Why do they need it?
CHEQUE
A cheque is a document that orders a bank to transfer a specified amount of money to another person’s account from the bank account of the cheque issuer. An individual can withdraw money from bank account via cheque.
- A cheque can be issued by an individual or a firm. A valid bank account holder can easily transfer money from his bank account to another person’s bank account by issuing cheque in the name of transferee (person who will receive the amount).
- Nowadays a cheque is rarely used in person-to-person transactions because the use of net banking, e-wallets, debit, and credit cards is on the rise. But cheque transactions are mostly used in business-to-business transactions.
Other than transfer and withdrawal of money, a cheque has other uses, like it can be used as a cancelled cheque.
What is a Cancelled Cheque?
A cancelled cheque is a type of cheque where the issuer will write the word “cancelled” between two parallel line drawn across the cheque. There is no need to sign and write anything on the cheque. It shows that the person holds an account with the bank.
It is a KYC ( know-your-customer ) document and is used to know the individual details.
Cancelled cheque provides following details:
- Name of the Account Holder
- IFSC Code of the bank, to know the branch of the bank in which you holds the bank account
- Account Number
- Name of the Bank
- MICR code
The reason to cancel the cheque is the prevention of any misuse.
When the cancelled cheque is used?
The use of cancelled cheque is not limited to banking transaction it is used for various purposes like:
- Cancelled cheque can be used for KYC purposes.
- In opening a Demat account.
- In taking a loan.
- While purchasing various insurance policies, mutual funds policies, schemes, etc.
- KYC is done in purchasing crypto currencies on the exchange
Overall a cancelled cheque is a way to verify account holder information.
Thanks for reading this article. Hope you found it very insightful and eye opener.
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