In my 10 years of profession as a financial advisor, I have always been a firm believer and advocated SIP as a form of investment for long term wealth creation. I have recommended clients to invest in SIP and align their investments to goals. What I have observed is that through this path of wealth creation there will be obstacles like job loss/switch, new house purchase, unexpected expenses etc. when wealth creation takes a back seat.

With my experience, I’d say that it is not a loss but a postponement in saving and investing; and yes, it does take time to get back that good habit. We can’t blame the investor as mutual fund is the most liquid option available and so unfortunately becomes the 1st choice, and an advantage of easy liquidity as compared to PPF and other saving instruments becomes a disadvantage. As an advisor, I cannot be the villain and stop the client from doing it. But I can certainly try to get them back on track after such postponement.

However, there is one thing I observe and has been consistent with my clients and that has been the SIPs which have been made under their child’s name. You can call it emotional attachment but nobody stops anything which is invested in their child’s name. It’s just that guilty feeling that the child’s future will be disturbed by liquidating the funds set aside for him, and trust me no parent wants to go through that guilt.

Therefore, I try and recommend a plan of action which would help a parent set aside funds for his child’s needs in future.

The First Steps

Firstly, I started investing in Mutual Funds via SIP in my child’s name. But only starting it does not make it right, there are a few things we need to do.

1. Once you have the birth certificate which is your child’s first proof of existence, apply for a PAN. A PAN is issued to a minor too and just need your child’s birth certificate, photograph along with your KYC documents.
2. Once the PAN is allotted along with the birth certificate open a bank account in his/her name and you as guardian. You’ll receive the cheque book bearing your child’s name. Start with the SIP investments.

This exercise creates a financial life by a separate account altogether. Yes, it is not your financial life; it is your child’s financial life. This helps you to keep a tab on both financial lives’ progress individually. The chances of you liquidating are less as it is in your child’s name.

Start Somewhere and Keep Growing

Allocate an amount which you think you can set aside for the first 2 years. I chose aggressive funds because I knew my timeline is definitely more than 10 years and aggressive funds will allow me to maximize my returns. Moreover, I review it once a year to see if any changes/additions are required.

There are many financial calculators apps for Android/Mac are available which help you determine the amount you need to set aside per month for your child’s goal. But initially, concentrate on setting aside and avoid the complexities. It’s about the habit of investing rather than investing. Have a long term view for your child; yes the numbers are important but more than that it’s important to start and after a couple of years assess and then keep increasing SIP amount. There will be ups and downs but eventually because the time horizon is more for your child, you will invariably end up creating wealth and contribute to your child’s future.

Drop by Drop

India has many festivals and everybody blesses the child, be it relatives or friends. Keep depositing them in his account and you will notice that you don’t even need to fund his SIP, it takes care of itself. The money which you would have otherwise spent is put to good use and if there is windfall in future, then just increase the SIP amount or invest as a lump sum by making additional purchase and let it grow. It helps in purchase of toys and gold which you anyway as a parent buy, so whatever your child gets in kind should be from you and whatever he get form relatives and friend should go straight into his bank account.

So if you have a birthday party of a friend’s child or when he is born and you see him/her for the first time, avoid buying gift unless you are absolutely sure that the child needs it, else it will just be another toy or gift. At the risk of sounding like a money minded person, I would urge you to please give cash when you are gifting too, as it gives the parent to choose either they buy what the child needs or they invest for his long term goals. You can personally contribute and take a step further by paying all his expenses like school fees and other major expenses from his account.

Benefits of the Journey

When your child is growing up, trust me he/she is smarter than what you were, they will be able to see how the contributions have helped in creating wealth and they too start valuing money. Child get’s exposed too and learns about cheque books, bank account passbook and has cheques with his name printed on it and more importantly when he attains 18 with updated PAN he is ready to take charge of his financial life. You don’t have to go through changing bank accounts and transferring funds then. This way you will also contribute creating a generation of informed investor.

Conclusion

Once again, I am repeating the importance to save and invest for your child. Be it PPF or FD but the logic is to start and see the long term benefits. At the same time Mutual Fund will give a better return compared to any of the other investments.

It’s like when you tell your child to drink milk and then you urge and persuade him to drink it SIP by SIP, the same urge and persuasion is required from you in this journey with SIP.

 

 

 

There is a lot of confusion, rather lack of clarity with regards to Dematerialisation of physical shares. With this article I have tried to give a gist of the process and provide a solution to common problems an investor might face who has physical shares and wants them to be dematerialised.

There is lot of confusion, rather lack of clarity with regards to dematerilisation of physical share

BACKGROUND

The Securities and Exchange Board of India (SEBI), on June 08, 2018, issued regulations pertaining to the mandatory dematerialization of securities for effecting transfers. The guidelines will be effective from December 05, 2018. This means post 5^th December, all requests for transfer of shares will have to be in the demat form only.

Any transfer of shares in physical form will not be allowed after December 05 2018.

Having said that, this rule has 2 exceptions:

1. It is not applicable for transfer of title of shares by way of inheritance or succession and
2. Transposition of shares i.e. interchanging of the order of name of shareholders will still be allowed after 5^th December, 2018.

PROCESS OF TRANSFER

The physical transfer of shares follows a process where the transferor and the transferee have to fill up a share transfer form (SH – 4). Share transfer forms have to be duly affixed of the value of 0.25% for consideration of shares i.e. the stamp duty has to be paid @0.25 % of the value of the shares of the day the franking is done.

The stamp duty value of 0.25% has to be paid Online on https://gras.mahakosh.gov.in/echallan/  if the amount of duty is less than Rs. 5,000/-. In case of higher amounts the stamp duty is to be paid through E-SBTR at the respective bank branches. Then the form has to be submitted to respective local branch.

Once the SH4 form has the stamps affixed it has to be submitted to the respective registrars of the company along with the original share certificate, PAN of both the transferor and the transferee along with the supporting documents.

Please note that every round of communication with the registrar takes around 1 to 1.5 months, hence do ensure that the documentation should be in order for the smooth transfer of shares.

This process gets completed in 2 months if all the documents and shares are in order.

SOME SCENARIOS TO DISCUSS

Let’s consider situations other than transfer.

• LOSS OF SHARE CERTIFICATE

If one does not know the status of the shares or the holding or has lost his share certificates the process becomes challenging and time consuming.

The status of the shares mainly includes the number of shares which change due to corporate actions like bonus, splits, merger or demerger or the shares may have been transferred to the IEPF A/c.

The basic status of these shares can be collected by asking the registrars. But generally the registrars do not entertain such questions via phone call or personal visit. They are instructed not to give out any information on the phone calls due to security reasons.

In such case the shareholder is advised to write a request letter for any query regarding the shares. The same goes through a long process and the revert is sent at the registered address of the shareholder.

The same process can be time consuming as it takes around 25 to 35 days for any reply. If one does not receive the letter he has to write back to them asking them to dispatch the same again. It is advisable that the letter of enquiry should be furnished with self-attested copies of PAN and aadhar for registrar’s verification.

Once the registrars have tallied and verified the applicant’s documents the reply is sent. In case the signature of the shareholder does not match as per their records or in case of any other discrepancies the registrar might ask for supporting documents like a banker’s verification or affidavit.

In case of loss of certificates, missing certificates or to apply for a duplicate share certificate the process may also involve FIRs, Affidavits, Indemnity Bonds and Declaration by surety.

• DEATH OF SHARE HOLDER

In case of death of a Shareholder the joint holder needs to write to the registrar notifying the demise of the joint holder by attaching the death certificate along with the above mentioned documents and request for the process to be initiated.

However in case of death of the shareholder who was a single holder of the shares, the beneficiaries need to prove their succession.

The documentation will differ and will be dependent on the value of the shares, the registrar of the company and whether there is a will in place or not.

ALL ABOUT IEPF

MCA has issued Investor Education and Protection Fund Authority Rules, 2017. As per these rules “Any money as dividend not claimed by investor within 7 year and 37 days from the date of declaration of dividend, shall be transferred by the company along with interest accrued, if any, thereon to Investor education and protection fund.

After 2017 even all Shares in respect of which dividend has not been paid or claimed for seven consecutive years or more have been transferred by the company in the name of Investor Education and Protection Fund (IEPF).There is a separate online procedure which has to be done to claim the dividend and shares from IEPF.

First and foremost you have to make sure if the shares are in IEPF by enquiring with the registrar by using any of the above mentioned ways. Once confirmed than start with the process at the earliest.

It is tedious which involves regulatory compliances to be done. The shareholder has to make an application in e-form IEPF 5 and mention all the details of shares and pending dividends an file with the Ministry of corporate affairs (MCA) and the company.  This process of such transfer/ transmission / deletion takes more than 6 months and the shares are directly transferred to the demat account.

UNLISTED / DELISTED / SUSPENDED SHARES

There may be some shares where trading is suspended or they may be delisted. It is advisable to check the last traded price and if the value is not much then one can ignore them.

If such companies are unlisted / delisted /suspended but still giving dividends, then It is recommended that these shares should be dematerialised.

CONCLUSION

It is a lengthy process but if the process is followed with discipline with proper follow-up you will be getting a value for the physical paper in hand which is worth the effort. You may get frustrated and also get offers from 3^rd parties who are willing to buy them at a percentage of the value but it is advisable not to exercise that option as there are chances that the shareholders might burn their hands and lose the shares in the bargain. Beware of sharks and stay informed.

Hope this article is helpful in understanding the process and dealing with physical shares.