After investments, pay attention to your paper work also
Several investors associate financial planning only with asset allocation and investment management. They completely exclude procedural and service aspects. Many believe that as long as they have chosen the right products with the help of their advisers, they will do well.
However, they forget that attention must be paid to paperwork and procedure as well to ensure that the investments are secure, cared for and, more importantly, easy to track and record. Very few investors maintain their own records because, typically, they deal with multiple advisers and, hence, their holdings remain scattered. Let us consider five key procedural elements that can impact an investor's risk and return significantly.
First, most investors don't like to read bulky documents that they are offered at the time of investing. The same is true for application forms, legal documents of engagement or forms for opening accounts. They simply sign the documents as instructed.
While these may have a lot of legal and standard terms that cannot be comprehended by investors, signing a blank document is risky. Several people also think that filling up the form is the adviser's job. However, one should insist on seeing the filled document before signing it. Ensure that key details, such as your name, address and PAN, are written and correctly and legible.
Note that spaces for joint holders are correctly filled, or if not used, struck off. Signing incomplete documents is a high operational risk and must be avoided at all costs.
Second, many investors do not pay attention to the mode of operation in an application form. If this is not mentioned in a joint application for bank accounts, demat account, shares, bonds or mutual funds the account will be marked as 'joint' by default and every transaction will need the signatures of all holders.
You must make sure this is indeed the intention. If an account is to be operated on 'either or survivor' basis, it is important to ensure that the joint holder details are filled up and the first holder's address is correctly provided so that the transactions are notified to the first holder. If multiple accounts across investments are held in various combinations, it makes monitoring the investments cumbersome, apart from creating tax issues.
While joint holding by husband and wife is common and useful, make sure that the funding is from the first holder's taxable income. Also ascertain that joint loans include documentation which indicates how the responsibility has been divided between the joint holders.
Third, multiple, fragmented holdings across various bank accounts, mutual fund folios, demat accounts and trading accounts make it difficult to have a consolidated view of your investments' performance. Accounts and folios that are inactive are also prone to fraudulent transactions.
You should close inoperative accounts, merge multiple folios and take the help of your adviser to consolidate your holdings. This will make it easier to see how the performance of a single investment is impacting the entire portfolio. Your joy of a 200% return on one of your picks will be short lived if you see that it is a mere 2% of your overall portfolio.
Fourth, confirm that the details of the people you have included as beneficiaries in your investments are updated. For instance, investments made before your marriage may not include your spouse as a beneficiary; the ones made in the names of your minor children will become inoperative when they turn 18; investments and loans made or taken jointly will need modification after a divorce; nominations in favour of a person who expires would become invalid. Modify these details in your holdings as and when required so that there is no panic when the account has to be accessed.
Fifth, remember to plan for the worst when it comes to your wealth. Ensure you have completed the nomination formalities and have ascertained that nothing is held in a single name with no nomination. Make sure you have records of loans taken against your investment and have insured liabilities such as home loans.
Make it easy for your immediate family members to realise the value of your investments, if they need these for an emergency like your being incapacitated, or access your wealth when you are no more. Guarantee that investments are listed and recorded, and that locker keys, passwords and PINs are accessible in an emergency. Making a will is a much recommended practice.
Take your advisers' help to complete time-consuming paperwork. A smart adviser understands that helping you consolidate your records could be an opportunity to manage a larger chunk of your wealth. He also knows that adding value where you need it most might help him win your trust. If you want your investment decisions to work, ensure that your paperwork is in order.Soruce ET
Best Regards
Prakash Nair
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