Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Money / Calculators/  4 essentials to have before investing
BackBack

4 essentials to have before investing

It is important to have the hygiene factors in place before you start investing and these four things act as building blocks towards a smooth financial journey

iStockPhotoPremium
iStockPhoto

It is not about building the intent and discipline to save for your goals, but about having the ‘hygiene factors’ in place that are essential to begin investing. They may be prescribed by regulators such as the Securities and Exchange Board of India (Sebi) and the Reserve Bank of India (RBI), or specifically by the investment and service providers. The eligibility to invest, and the efficiency with which the investments are made and managed, will depend upon these four factors being in place.

Bank Account

Most investment products require payments and receipts to be channelled through the banking system. Cash as a mode of making payment is restricted to investments such as the government’s small savings schemes, the National Pension System (NPS) and mutual funds that accept cash up to prescribed limits.

Some products, such as mutual funds, do not accept cheques issued from third-party accounts. Capital market transactions are routed through the investor’s bank account. Dividend, interest, maturity and redemption cheques are typically made out to the investor’s name and require a bank account to be processed.

A direct transfer of funds, or modes such as National Electronic Funds Transfer (NEFT) and Real Time Gross Settlement (RTGS) systems of the RBI, allow transfer of funds electronically from the account of the remitter to a beneficiary.

Permanent account number

Commonly called PAN, this alphanumeric identity is issued by the income tax authorities, and has to be produced at the time of initiating financial transactions including opening a bank account or demat account, making and redeeming investments and deposits, buying and selling real estate assets, buying insurance and applying for a debit or credit card.

Transactions below a prescribed value may be exempt from the need to provide the PAN details. Currently, the exemption limit is Rs50,000 to Rs1 lakh for most payments related to investments, cash transactions and deposits with the bank and post office and insurance premium payments, and Rs10 lakh for real estate transactions. For transactions that require PAN, the original is verified against a self-attested photocopy. If a PAN is not available, then a declaration has to be made in Form No.60, under the Income-tax Rules, 1962, giving particulars of the transaction and proofs of identity and address.

Form 49A, issued under the Income-tax Act, 1961, is the prescribed form to apply for a PAN. The income tax department has tied up with organisations such as the Unit Trust of India (UTI) and National Securities Depository Ltd (NSDL), which can accept Form 49A and verify the supporting documents.

Know-your-customer norms

The Prevention of Money Laundering Act (PMLA), 2002 requires the identity of those entering into financial transactions to be established and verified.

This is done according to the Know your customer (KYC) norms. Banks, depository participants, insurance companies, post offices, brokers, mutual funds and their distributors, NPS points of presence and other financial intermediaries conduct the KYC compliance process the first time a transaction is initiated with an investor.

If the KYC procedures have been complied with any one capital market intermediary registered with the Sebi—such as a depository participant, mutual fund, stock broker and portfolio manager—the acknowledgement of compliance can be used to invest with the others.

The Central KYC Registry launched in August this year is one more step to enable inter-usability of KYC records across the financial sector.

Demat account

Depositories enable the holding of securities in a dematerialised (demat) or electronic form. Some investments—such as shares, debentures, and government securities—made through the stock markets and initial public offers (IPO) mandatorily require a demat account, through which the delivery and receipt of securities are routed. Other investments such as mutual funds and small savings schemes can also be held in the demat account. Holding securities in an electronic form, as against the physical form, provides ease of transaction, provides greater security and consolidates the investments, making it easier to track and monitor them. Eligible securities held in physical form can be dematerialised. And, if necessary, dematerialised securities can be rematerialised to the physical form.

Investors can open demat accounts with any depository participant associated with the NSDL or the Central Depository Services Ltd (CDSL). The pattern and sequence of holding of the demat account has to match that of the investment being dematerialised. An investor can hold multiple demat accounts.

Take some time to sort these elements out before investing so that they don’t act as a roadblock once you are set to invest. New investors may get demotivated if they have to deal with multiple rules and regulations at the last moment, and may even postpone the decision to invest.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 06 Nov 2016, 11:57 PM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App