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What care should one take while investing?


Before deciding about any investment, there are a lot of things one should be careful about. This includes:

Copies of documents.

Any investment scheme will have a written document which explains the offer. It’s important that you ask for those documents and keep it in a file with you. Investment advisors and sales person work on a target basis and they work under lot of pressure from the management. Obviously, these people would explain details in a way that the scheme is attractive to you. It’s part of their duty to present it well and attract customers. They are trained to do that.  Many of those offers may be subject to lot of terms and conditions. Finally, when you question a mismatch with what was said by the sales person and what’s happening with the investment scheme, the company will ask for written proofs!!So always insist on obtaining a copy of any document you sign.

Read, understand, ask questions.

Some people do collect all the information in written form, but they fail to read the lines carefully. In any investment broacher or document, the negative factors or unfavorable terms and conditions will be written in the smallest of letters possible. So try to go thru the entire documents, especially the terms and conditions and ask questions if you have. There is no need for any hurry although the sales person may pressurize you to sign the documents to close his deal.

Although any advertisement / sales person will be projecting the expected return on an investment, the main pint to be thought about in an investment is not return, but protection of capital – in other words the risk associated with it. You’ll be able to take the right decision only if you can correctly gauge the risk associated with any financial product.

Verify the legitimacy.

Investment scams have become very common these days. People invest in schemes that are received through email or phone calls or representatives who lure them to invest in a product or property or forex. Before investing consult a financial advisor or an advocate and verify the following  points:

  1. The legitimacy of the company that’s promoting the scheme
  2. Whether such schemes are allowed to be operated.
  3. The licenses or permit granted and the Act or Law under which the scheme is allowed to operate. Normally such information will be disclosed in the brochure itself.
  4. The truthfulness of testimonials and references they present.
  5. Details of head office, branch offices etc. If possible try to visit the office. Most fraud schemes are very confident about the results but fall short when it comes to details. Remember that existence of Websites and phone numbers are not proofs for the legitimate existence of a company or scheme.

Government’s approval.

In almost all countries, any investment scheme should have government’s approval. Approval would be in the form of licenses or registration numbers. The constitution of the business as a company under the companies Act, ISO certifications, testimonials from famous personalities etc does not guarantee that the scheme operated by the company is legal.

Never pay cash.

Always pay by cheque and get a receipt for the same. Cheques paid should be a crossed account payee cheque in favour of the company or scheme name.

Do a cost benefit analysis.

The costs should justify the benefits. Some investments carry a lot of hidden charges. It’s hidden in the sense that, those charges will be disclosed in the offer document in such a way that you get confused about the way in which those charges would be applied.

Assess the risk of investments.

The thumb rule is- higher the return, higher the risk. There is no such thing called low risk-high return investment. All investment carry risk and the degree of risk increases as the expected rate of return increases.

Know the liquidity and safety aspects.

Your investment should be liquid, ie, it should be convertible into cash quickly. Also evaluate the after tax return on investments.  Most of the investment schemes talk about returns before tax.


At any point of time, you‘ll have many investment opportunities in front of you. List out your objectives and financial goals first. Then, analyze whether those investments would help to meet your financial goals. Also compare it with similar investment schemes offered by other companies.

Deal through authorized intermediaries.

Most of the investment companies use the help of intermediaries to generate business. For example- mutual funds are sold through AMFI certified agents. Make sure that the agent that represents that company is qualified to do so. Ask all the clarifications you need to the intermediary.

Search the web.

The internet is full of information about any topic you need. Search the net before you talk to the representative. The net will contain reviews by experts on investment schemes. Read at least 3 or 4 reviews. Since these are written by people who are already experienced, it would benefit you a lot.

What if something goes wrong?

Explore the options available to you if something were to go wrong; Is there a regulatory body who would address your grievances? Do they have a local office in your state? After all this,  if you are satisfied, make the investment.

What’s said above is the minimum level of understanding you should have before embarking on an investment.

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