Imagine you bought a new car on your birthday. You may be an extremely competent driver but that is not enough if you wish to take the car for a spin on the highway. For that, you need to have the right documents in place. Similarly, you may know all about mutual funds. But if you wish to invest, you need to be KYC compliant.
What is KYC?
KYC is an acronym for Know Your Customer. It is a process initiated by the Securities and Exchanges Board of India (SEBI) for proper identification of investors. This way, all financial institutions are aware of their clients.
How can you be KYC compliant?
1) Fulfil your KYC requirements
In order to get started, you need to fill in the KYC form. This form would be provided to you by the mutual fund house. In addition, you will also be required to submit a few documents.
2) In-person verification
Under SEBI rules, you can invest up to Rs 50,000 per year in a mutual fund with e-KYC using OTP verification process*. But if you were to invest a larger amount, you would have to undergo an in-person verification process. You can complete this process through your AMC or a distributor who is certified by the Association of Mutual Funds of India (AMFI).
3) Check if information is updated
Once you finish the formalities, you can check online if your data has been updated. Finding out your status is very simple. All you need to do is log into the KYC Registration Agency (KRA) website. Here, you will be asked to provide a few details such as your PAN number. If your details are updated, you get a message that you are KYC verified. After this, you can conduct transactions in mutual funds. If not, the status is shown as pending. In this case, you may have to wait until your information gets updated.
After the entire process is completed, you will be provided with a unique 14-digit identification number. This is known as your KIN or KYC Identification Number. So if you are not yet KYC compliant, it is best to get the process started as soon as possible. The sooner you get it completed, the faster you can start investing and accumulating wealth.
Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
How to make your Investment Plan
Imagine that you and your friends have decided to go on a road trip from one end of the country to another. One option is to just wing it. Get into the car and see what happens next. Nine out of 10 times, this ends up in a disaster (the only time it is successful is in movies). On the other hand, you could plan the trip well in advance and have a blast! Get a map, ensure there is plenty of food and water, have a spare tyre in case the car breaks down. And music, don’t forget to have good music.Similarly, investing money can be seen as a lifelong journey. And to do it successfully, you need to have a good investment plan.In this article, let’s find out how you can make an investment plan so that you can earn good returns over the years.Anatomy of an investment plan:1) Establish your financial goalsWhat are the different financial goals you wish to achieve in the coming years? Write down all of your goals on a list of paper. Sam, a 25 year old engineer has the following goals: Everyone has different investment goals. And the first step to achieve these goals is to identify them and outline them as clearly as possible. 2) Analyse the different investment optionsThe great thing about investing is that there are lots of options to choose from. A lot of investors think that it is enough if you identify a good investment option and put your money in it. That’s the wrong approach. Your investment strategy should be goal-based. This way, you can find the right avenues to invest your money. For example, to create an emergency savings fund, investments in fixed deposits or short-term debt funds is a good option. For a long-term investment goal like retirement, investment in equity funds is more suitable because it has the potential to provide high returns. 3) Risk and return: Ensure there is a balanceWhen it comes to investments, there is always a degree of risk. Whether it is a savings bank account or the stock market, you cannot avoid risk. However, the degree of risk varies from one investment option to another. It is commonly said: higher the returns, higher the risk. So, it is very important to choose an investment option that matches your risk tolerance level and also helps you achieve your goals. For example, you may not want to invest in stocks because of the high risk involved. But that doesn’t mean you cannot invest in equities at all. Through mutual funds (balanced funds, index funds), you can invest in equities and minimize your risk. 4) DiversificationEveryone knows the saying: don’t put all your eggs in one basket. But when it comes to investing, it is important to put this saying into practice. Putting all your investments in a single option is dangerous. For example, imagine you put your entire investment amount in equities. The market may be performing exceedingly well. But if the market crashes all of a sudden, you could lose your entire money. Try to split your investments into different avenues such as stocks, bonds and savings accounts. Another way to diversify is to invest in index funds. 5) Evaluate your progressRemember that road trip you plan to take with your friends. Once you reach a certain stage, you may want to whip out the map (or Google maps on your phone) and see your progress. Are you on track or did your friend take a wrong turn and you are nowhere near your destination? Similarly, you need to check your investments once in a while to ensure they are performing as per your plan. As you grow older, your goals may change. At such times, you need to incorporate your new goals into your investment plan and create a strategy to achieve these new goals. This way, you can ensure that your investments are working for you in the right way. ConclusionA plan helps you put your goals into a tangible and actionable form. By creating an investment plan, you can clearly see how much you have progressed year after year. So the first step of investing is to create a plan. And the important part is to stick to it, unless there is no other option but to change it (refer point 5). Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
Mistakes to avoid when investing
When it comes to the stock market, nobody is perfect. Anyone can make mistakes. But that doesn’t mean you make the same mistakes as the others did before you. Wouldn’t it be great if you got a cheat-sheet that helps you avoid some of the common mistakes?Well, this is a cheat-sheet that can give you a leg-up over the others.1) Lack of knowledgeMany investors commit mistakes in the stock market simply because they do not have the required know-how. They directly start trading or investing without any prior knowledge. It is important to be aware of some of the fundamentals in the market before putting your money in stocks. Comparing and contrasting different stocks in a sector, reading the financials of a stock and identifying patterns are some of the important aspects on which you should have a firm grasp. 2) Investing without a planAs an investor, there may be many things you want to achieve.a) Building a home for your family b) Sending your children to the best schools and collegesc) Taking your family on an exotic vacation d) Earning a regular incomeYou may invest your money in order to achieve these different goals. But what if two goals clashed? You may not be able to do justice to both goals at the same time. This happens when you invest without a plan.In order to achieve all your goals successfully, you need to create a proper financial plan. This way, you can allocate funds to meet specific goals. For example, you can invest in stocks of blue chip companies in order to earn a dividend. This gives you a regular income. You can use another portion to invest in equity mutual funds in order to buy your house in 10 years time. This way, you can achieve your goals one after the other.3) Timing the marketMarket timing is a strategy where investors buy or sell in the market by trying to predict future price movements of stocks. This can be quite risky, especially if you are new to investing. The market timing strategy uses historic price movements to identify future prices. 4) Investing on unsolicited tipsThe stock market is filled with people giving tips. Even on TV, newspapers and online, you come across several self-anointed market gurus. You might read headlines such as: “Invest in these 5 stocks to double your money in 6 months.” Such headlines are sure to lure a reader to take a look. But if you act on these tips, it may be the fastest way to part with your hard-earned money. Beware of such tips. Don’t invest based on these suggestions without doing your own personal analysis. After your research, if it still sounds like a good idea, you can invest in the stock. 5) Ignoring portfolio reviewBuying stocks is not the final investment step. You need to monitor your portfolio and review it on a regular basis. Many people ignore this step. If the funds in your portfolio don’t work as per your expectations you should change them. In addition, your goals may change as you grow older. For example, after you become a parent, you may have to incorporate your child’s needs into the financial plan. It is important to incorporate these goals in a timely manner. ConclusionThere could be any number of mistakes an investor makes in the market. But by avoiding some of the basic ones, you can gain investment experience a lot faster. Avoid the above mistakes to ensure better performance in the stock market. Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
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