How to start investing?

Financial Planning | admin | June 10, 2011 at 9:48 am

Ranjit is 32 years old and got married recently. He earns well but also spends a lot on eating out and holidaying, which leaves him with very little investible surplus. He wants to save and is concerned about his inability to get his investment plan going. However, he is unable to take that very important first step and keeps finding reasons to avoid doing so. What can Ranjit do to overcome his inertia and start an overdue investment plan?

Some people have valid reasons for postponing their investments. They either don't have enough money or have other financial commitments. Ranjit's problem is different. Although he earns well and is very keen to save, his spendthrift lifestyle leaves him with very little to invest.

It's a common problem that many people face at this age. Ranjit's financial equation is: Earnings — Expenses = Savings. His problem can be solved if he simply changes this to Earnings — Savings = Expenses. Instead of trying to save what is left after his expenses, he should try to limit his expenses to whatever is left after his investments. This way he can ensure that some portion of his income goes into savings every month. Also, if that money will no longer be available to him, he will wily nilly have to curb his discretionary spending.

The best time to invest is pay day itself, or even before that. For investments in debt, Ranjit can instruct his employer to deduct more than the mandatory PF contribution from his salary. He could also start a recurring deposit or a bank FD.

However, given his age and risk profile, Ranjit should start an SIP in a good diversified equity fund. That will require some effort—going to a broker or bank, filling up the application form and completing the KYC documentation. Once done, he can give an ECS mandate to his bank to put a fixed amount into his mutual fund every month. This will ensure that even if he forgets to invest, his bank won't. Also, this strategy will not require his active participation.

Paper work: Registering the change of address with CVL

All investors in mutual funds have to comply with the Know Your Customer (KYC) norms laid down by Sebi. This is a one-time exercise and the investor needs to provide documentary evidence of identity and address to CSDL Ventures (CVL). The database of the KYC details of investor is maintained by CVL and provided to mutual funds with whom the investor may invest.

Since mutual funds communicate with the investor using the address provided, it is important for the investors to keep the information updated in the records of CVL. When an investor applies for a change of the address details, CVL verifies the information with the supporting documents provided, updates its records and then passes on this information to the mutual funds. Investors need not communicate details of the change of address to each mutual fund house in whom they have invested.

Points to note

Address to match: The documents provided as proof of new address must have the same address as the one mentioned in the KYC form. In case it doesn't match the application may be rejected.

Validity of supporting document: If the documents provided has a date validity, it must be valid at the time of submission. Documents like bills should not be more than three months old at the time of submission.

Period for updation : It takes 10 days for the updated information to reflect in the records of the mutual fund. Investors are advised not to undertake any transactions during this period.

Source: Economic Times