Are your financial investments traceable? 

When you’re looking to add a new investment to your portfolio, what do you search for? High returns, taxability, safety and liquidity, perhaps. But as you get older, an unusual attribute becomes important — traceability.

Should you make an impulsive investment that slips your mind, how easy would it be to find evidence of it later? If your family members need to take stock of your net worth in your absence, how easy will it be for them to track down your financial assets?  The importance of choosing traceable investments, even in financial assets (land and gold are another story) was brought home to me quite recently when I reviewed my portfolio. Here are some thoughts making your investments more traceable.  

Sign up for CAS

With Indian regulators moving all listed investments to the electronic format, the demat account has become the single largest repository of our financial transactions.  Apart from shares, today a demat account lodges a wide variety of financial investments — listed NCDs (non-convertible debentures), tax-free bonds, sovereign gold bonds issued by RBI, exchange traded funds (ETFs) including debt and gold ETFs and even your holdings in curated portfolios such as smallcases.

Earlier, tracking mutual fund investments was a headache because of the units being lodged with individual fund houses with sporadic accounts statements. But with the two depositories NSDL and CDSL now generating a monthly Common Account Statement or CAS, all mutual fund investments are aggregated into a single statement, along with your listed stocks and bonds. While signing up for CAS with either of the depositories is supposed to give you an aggregated view of all your investments, in practice, investors find that CAS statements of one depository do not fully capture the other. Subscribing to CAS from both CDSL and NSDL may help you track your MF holdings comprehensively.

Many folks, in a futile bid to bamboozle the taxman, use multiple holding structures on their investments. In some they figure as the first holder, in some they name their spouses or take a joint holding structure. Holding your investments in this haphazard fashion makes them harder to track. As the taxman today has ample resources to track down all your investments using your PAN, avoid such strategies that complicate traceability.      

Demat 54EC bonds

Many folks who sell property invest the proceeds in Section 54EC bonds from REC, NHAI and other entities. Until recently, these bonds were issued as physical certificates, with only a piece of paper evidencing lakhs worth of investments. As these bonds carry a 5-year lock-in period, there’s every possibility that senior folks may forget about them or that their family members are not even aware of their existence.  

Thankfully, 54EC bonds can now be held in demat too, if you opt for it at the time of application. Ensure that both you and your family members do use this option whenever they make capital gains investments. If 54EC bonds figure in your CAS statements, you and your family can easily keep track of them.

Record non-demat investments

Even today, some financial investments are outside the purview of demat. There’s the ubiquitous fixed deposit issued by banks or NBFCs. FDs are one of the easiest instruments to invest in and forget. If your bank offers online FD creation and liquidation, do opt for this over FDs that require physical receipts. Online FDs are easier to track because your bank’s portal will list all FDs to your name and auto-credit the maturity proceeds to your account. There’s no need to maintain physical FD receipts that are apt to go missing. In an emergency, your family can access your FDs, with access to your net banking credentials.

Post office schemes may offer good returns, but are among the most painful to track because of a physical passbook system. As you get older, think thrice about this cumbersome investment. A better alternative is investing in government securities through RBI’s Retail Direct Gilt platform. Though these are not demat, these holdings are held electronically in your RDG account. RBI’s support team sends you a monthly statement of holdings via email. Another good instrument – GOI Floating Rate Savings Bonds – are non-demat too. They are held in a separate ledger bond account maintained by RBI and you need either electronic or paper evidence of your investment to know they exist.

If you must own post office schemes, offline FDs or GOI Floating Rate Bonds, do ensure you maintain a physical record that you or your family members can easily access.  

Open e-Insurance account  

When you have a health emergency that requires hospitalisation or a family member passes away, filing a timely claim is essential to financial security. But this becomes impossible if your policy documents are spirited away in a dusty corner. Most of us subscribe to multiple life insurance policies through our investment life.  Apart from a term cover, you may own ULIPs, endowment plans, money-back plans or pension plans, which carry a protection component. But to file timely claims on these, your family needs to know about the existence of these policies.

This makes a good use case for opening an e-Insurance account with the National Insurance Registry (https:/nir.ndml.in) where any policyholder can lodge all his insurance policies. If you’re buying a new insurance policy (whether motor, health, general or life), opt for an electronic policy which is automatically credited to this account. You can convert your existing physical policies into electronic ones too. The NIR allows you to designate an Authorised Person (apart from nominee) who can access all your policies.

Finally, to make your life easier, have a physical record or an excel sheet detailing all your investments in financial or physical assets. In this electronic age, usernames and passwords often hold the key to all your material wealth. Make sure a trusted family member has these details and your email credentials at hand, to access in case of emergencies.

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