Investing: Be careful about paperwork

Investors spend time on their investments, mostly on the selection of options for their portfolio. However, little attention is paid to another area of equal importance, the paperwork related to the investment.

Inadequate attention to this area can lead to a situation where the entire investment is stalled. The several details that need completing can range from just completing the nomination form in the investment to ensuring the bank account details are given to the investing institution.

Postponing these can lead to a position where the investment process is not complete and this can even hinder access to the investment. We discuss some areas where effort in this regard are needed.

PAN

There are several investments an investor would have made at different points of time. Due to the varying of requirements over time, the information given at the time of investing will also be different.

For example, equity investments in the past two years would have been accompanied by giving a Permanent Account Number (PAN). So, too, with new bank accounts. However, these were not needed in the past.

This could lead to a situation where the investment would be considered now to lack needed legal detail and to a position where access to the investment is blocked till the PAN is given. It is essential the individual investor updates these details with the various institutions, so that there is no problem when there is an effort to sell the investment.

Bank Account Numbers

Most investments also have a requirement on a bank account to be supplied to the institution with which the investment is made. This is usually to ensure the money in the investment goes directly to the account of the investor, reducing the scope for fraud and also to ensure the process is completed smoothly. Supplying this number, with the MICR code and other details like the address of the branch is required.

Another situation is when the investor changes a bank account and, in such a situation, the entire process has to be completed again, to update the new number in the records of the mutual fund or broker or bond-issuing institution.

In some cases, the bank account might not be changed, but the bank might have moved to a different software system for its operations, due to which the account number changes. In such a position, too, it is important that the new information is given to all the relevant places. This is a tiring task, especially when there are several investments.

Nomination Facility

There are also situations whereby the investment is made in a single name and this will give rise to the requirement to have some nomination for the investment. Bonds, mutual funds, insurance policies, trading account and even bank accounts are some places where this facility will be in operation.

This is done to ensure a system is in place whereby there is someone to receive the amount if the original investor is not present. Completing the nomination process requires filling a form and often requires the signature of the person nominated and this adds to the tediousness but is one detail that needs to be completed.

Details

There are a lot of details involved with an investment so, for example, if there is a mutual fund investment, then the address of the investor, the phone details, the email ID and even the bank account details have to be known by the fund. Any mistake here needs correction; the consequences of not doing so could be serious.

For example, if the name is wrongly recorded, then the name printed on the redemption proceeds will not match with the bank account and hence the payment would be rejected. Or, if the address isn't correct, the communication will not reach the right address. Especially so, in case of any change in address.

The writer is a certified financial planner.