At a recent session, participants were concerned about all the negative news emanating from financial markets over the last one year. With a bank failing, stockbrokers pledging client securities and companies not paying back investors, it has been a scary time for lay investors, who trusted these firms on the basis of their size and ratings. Plus, the belief that the government would step in, if need be.

Each time a scam broke out, there were many columns and advisories from regulators on things to be done by individuals to protect themselves. While it is important to take note of the above, I find that most investors are caught unawares because they didn’t take simple precautions before investing or didn’t keep track of statements post investing. Here are some steps that can partly shield you from being a victim of mis-selling and fraud, even as you deal with regulated entities.

Pre investment

Even now, financial decisions are based on hearsay from friends or family members and not on research. Unlike a house property, which is bought based on a lot of groundwork, for investments or even insurance, investors trust the internet and search “best SIPs to invest" or go by the insurance agent’s spiel. Investors seldom read offer documents or even go through policy illustrations or documents to understand more. Some common queries I get are: “I have invested in XYZ secure plan, is this a good mutual fund to invest into?"; “How is XYZ assure plan to save for child education? It is giving a guaranteed return of 15%".

Clearly, these investors have not studied the investment. Before buying a life insurance, investors should be aware that returns are not guaranteed and illustrations can only be shown at 4% or 8%. Further, for medical insurance, read the exclusions and waiting periods carefully rather than going for a policy with the lowest premium.

I still find that investors are happy to sign blank forms, which is not advisable as there could be simple errors like spelling mistakes or information entered incorrectly, which could lead to an issue later on, especially in case of insurance. Further, when someone is selling you a product, look up the company. Is it an insurance company or a mutual fund? If it is a bank, what is the capital adequacy ratio? Has there been any negative news about the institution in the past?

Remember, greed kills. If a firm is offering you more than 2% above what State Bank of India offers you on deposits, you should be aware that there could be credit risk. For instance, gold schemes from jewellers—they may give 12-16% but are completely unregulated.

Post investment

It is not uncommon for investors not to check their account statements when they make an investment or even regularly. In the recent broking case, there was a detailed advisory from the exchanges on how investors can keep their stocks safe. The key is to verify your statements regularly for correctness. This holds good for bank accounts, demat accounts, mutual fund statements, insurance policies and even loan statements.

Sign up for a monthly statement from the National Securities Depository Ltd (NSDL), which will give you information on transactions, dividends and holdings in stocks and mutual funds. Bank and loan statements will need to be validated individually.

Sign up for mobile alerts in all financial holdings, irrespective of the amount, so that you have the required information about transactions on a real-time basis. Ensure that you deal with institutions, which have secure websites and provide two-factor authentication.

Internet, ATM and card frauds have jumped 50% in 2018-19 and investors should be careful about giving out sensitive account information.

While it will take a lot of effort to change lax regulations and poor governance of financial institutions, regulators can consider creating a “one-pager" on each product, which needs to be part of the application form. This “one-pager" can highlight the mis-selling point. For example, for traditional life insurance policies, it should be mentioned that returns are not guaranteed. Similarly, post the sale, a “one-pager", mentioning things to watch out for (like the one sent by the exchanges), should be sent.

As we approach the New Year, make a resolution to spend 15-30 minutes each month on your financial decisions and documents to keep yourself from falling for mis-selling and frauds.

Be disciplined. Be safe.

Mrin Agarwal is a financial educator, founder director of Finsafe India Pvt. Ltd and co-founder of Womantra

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