An Investor’s Checklist

I came across a Post in one of my Investor Groups: Unfaithful Banks and the Importance of Financial Literacy:

Large Bank loots Celebrity after big promises of 24% returns – See LINK 

Now I’m not sure about this particular incident, but I have certainly come across a number of cases of Investors who have lost money after investing funds with well known brokers or banks.

I’d like to dedicate this post to this issue.

Many Investors have a fear or complex about finance and investments. Yet realize that their savings need to put aside carefully.

The larger the brand in financial services, the greater the trust people have in it. However many times this trust is usurped by these famous firms, and the savings are lost.
All investors need to realize that they themselves alone need to monitor their investments.

Investors Checklist

This simple 5 point set of questions should be asked by any customer before buying any investment product from a firm:
  1. Asset: Where is my money going to be invested – (like Equity, Debt, Govt securities, bonds, etc.) and in what proportion? Will the Firm switch Assets? And what are the returns I can expect?
  2. Timeline: What timeline is this investment for? When can I exit from this investment? Will there be a loss for me if I need the money and exit earlier? How much?
  3. Involvement: When are the funds going to be invested – Immediately; At Investment manager’s discretion; or with My permission? (Ask for your permission rather than handing over this decision to the firm)
  4. Transparency: When will the Firm be reporting to me on the performance of the Investment? Can I see it anytime?
  5. Risks: Every Asset class has a standard market risk attached to it. To sell you investment products, Firms underplay Risks at the time of purchase, and perhaps overplay them later, to justify losses :-). Ask the Seller (and find out independently) the Fair market Risks at the time of purchase. Do not invest unless you are comfortable with the Risks.
 And for the investor:
  • At the time of purchase, as a responsible investor you need to record the above answers. You should negotiate wherever possible for better transparency, reporting and involvement in the decision process, even if you do not know much about the asset. After all it is your money.
  • The investor needs to set up a personal schedule to review the investments (perhaps monthly like your bank account) to see the performance.

The above generalized checklist is good for almost any investment, like FDs, insurance, PMS, Mutual Fund, ETF, Real Estate, etc.

Good Luck and Profitable Investing …..

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