The Citi has been Sleeping-Part II

Following the earlier post let me continue to narrate some simple steps that I have started to take after the incident with the Relationship Manager of the bank. Mind you none of them is rocket since or some thing new, I am sure each one of you know them but it is a matter of practice to implement them:

1. Never ever sign blank forms. No matter how busy you are, signing blank forms is not very different from signing blank checks.
2. Always keep a photocopy of the documents you are signing. If a photocopier is not handy take pictures of the forms with your phone camera. The pictures will not win any award but will still be better than not having any photocopy of the forms you have signed.
3. Always keep the number of the supervisor of the person you are dealing with handy so that you can speak to the next level in case of any issue.
4. All the checks should always be given in names of the Asset management company/scheme you are investing in and should be crossed across.
5. Never ever give cash. All investments should be done using checks and only checks or electronic transfers if you are tech savvy.
6. Keep a photocopy of the checks along with the signed and filled forms for your records.
7. Once you have given the papers to the RM/bank employee follow it with an email to the employee, his /her supervisor and the customer service email box, mentioning the date, amount and the scheme you are investing in. This will ensure that people other than the person who is collecting forms from you are aware that the RM has collected checks from you. This will also scare away any body planning fraud as they would not like to mess up with somebody keeping records meticulously.
8. If you do not get your statement within the promised time period immediately follow it up with the banks RM and if he does not return your calls immediately escalate.
9. Most new accounts require copies of your PAN card or address proof etc. Always sign these photocopies and also write what you are giving them for. E.g if it is for opening a mutual fund account. Next to your signature mention that : Photocopy being given for MF account for XYZ company. This way nobody will be able to make further photocopies and use the same for opening a fraudulent account in your name. ( ID theft is a big problem in US)

Relationship managers are assigned to privileged customers of the bank and most of them are very decent people, unfortunately their goal is to sell, sell and sell some more to you. It is not always that there goal and your goals are aligned to each other. I was ok with a smooth talking sales man trying to sell me for his commission but what has happened in Citi bank's case is a pure case fraud where money from an investors account has been taken out.

SEBI has now mandated that a third party check cannot be accepted for a Mutual fund transaction, so this will reduce the element of fraud to some extent, but you never know.

So in order to protect our own interest it is important that we be more vigilant with our own money and very careful what we sign or not sign.

Coal India IPO- Part II

Coal India- Part II

A dear friend called me from Delhi and informed me that he has read my blog and he has applied for the same before reading my blog. I was very happy that some body is reading my blog. More so Mr. D as he is a very busy man. But what I was surprised to learn was that he has not applied in the retail investor category but in the HNI category and in order to apply for a large no of shares he has taken a personal loan at the rate of 15% per annum from a bank to apply for the same.

Now his logic was if the Coal India IPO is such a wonderful thing that definitely he is going to make more than the 15% he is paying to the bank on the interest rate.

Without going to go into too many calculations here are my arguments against taking a personal loan to apply for an IPO:

1. IPO is a lottery you are not sure how many stocks you will get in the allotment.
2. The more successful and IPO the less your chances of getting a higher number of shares as the pie will be divided amongst more number of applicants.
3. There is no guarantee that just because more number of applications has come you will make money out of the IPO. Just remember the Reliance Power IPO which was highly oversubscribed but still investors ended loosing money.
4. The listing gains are fully taxable if sold before a year and you will not get a deduction for the interest that you pay to the bank for the application money as it is a personal loan and not a business loan. ( Comments needed on this belief)
5. But the biggest reason I am against taking a loan for applying for an IPO is that in principle I am against taking debt to play in stock markets. As the markets are highly volatile and can swing either way in a very short time. You don’t want to be caught in a situation when you have taken a loan to buy stocks and the price drops substantially. So now you are stuck with a stock that is below your acquisition price and you have a loan to pay for.

SEBI has raised the limit for retail investors to Rs 200000/- per IPO going forward and this will tempt more and more investors to look at financing from banks to apply for IPOs. I would strongly recommend to not taking a loan to apply for IPO or to invest in stock market no matter how strong your conviction about the stock is.

Thanks for reading do leave a comment.