Before buying any financial product, find out if the company has a good record in customer service.
Investors have been lured into investments offering high returns by many entities. This ‘attractive’ returns become unattractive due to poor servicing or investor practices followed by these entities and investors end up rueing their investment decisions.
Jayant Handa had invested an amount in a bank fixed deposit for a three-year period with a nearby urban co-operative bank some years back. As the investment was made quite a few years back, he forgot to claim money on redemption and did so only after one year. Due to this, his effective return came down as he got only savings bank interest from due date to date of actual receipt of money. While making his investment, Jayant must have thought about returns and convenience of operations but due to no communication received from the bank regarding maturity of his investment, he got lower interest after due date resulting in lower yield on his investment.
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Similarly a few years back dealing with public sector bank was a pain for depositors as they had to deal with rude staff, serpentine queues, lack of proper communication and information. However things have improved to some extent since then.
Poor service can be taxing for an investor as it will have financial impact in terms of not receiving the principal or returns on time apart from causing stress. Moreover some entities do not provide timely information to investors resulting in incorrect investment decisions. Hence it is important that investor put money in companies or funds with good investor service and practice. This may be at the cost of even foregoing higher returns.
Who provides investor service: Investor service is rendered by the company, fund house, distributors, financial advisors and authorised agents(insurance). It is important that each element in the chain provide good service. Recently we have seen how one of the employees of Citibank took its wealth management clients for a ride and caused loss to the tune of more than Rs 300 crore. The employee diverted the investors’ funds to his relatives and utilised the same to invest in stock markets.
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How is poor investor service rendered: Some of the instances wherein poor servicing can hamper your investments are:
- Not getting principal amount invested on time
- Failure in servicing the investor by way of interest or dividend
- Interest and Dividend warrants misplaced in transit
- Hidden costs in the schemes (as in the case of unit-linked insurance policies mostly)
- Misleading advertisements
- Providing incorrect data
- Not sharing material information with investors
- Poor corporate governance practices
- Deploying money in risky avenues by mutual funds
- Non-receipt or incorrect tax-deducted-at-source (TDS) certificates and so on.
- Non receipt of corporate action information such as rights, buybacks and so on.
Investing in stock markets requires caution: A word of abundant caution for people investing in stock markets. Before making any investments in the stock market, it is important to understand the basic concepts. Unless you understand the basic concepts, you would not be able to make a good decision how to make investment. Beware of people who try to mislead you and make you choose stocks which are not actually profitable for you. Investors should never blindly follow their ideas.
Investor protection: The government has appointed several regulatory bodies to safeguard investor interest. Example Reserve Bank of India (RBI) for banks, Securities and Exchange Board of India (Sebi) for stock markets, Insurance Regulatory and Development Authority (Irda) for insurance, among others. These regulators play a key role in protecting investor interest and penalising the defaulters. Government also takes a lot of investor awareness initiatives to update investors on their rights and recourse available in case of poor service. Companies have to compulsorily disclose investor grievance redressal statistics in their quarterly and annual publications.
Identifying investor ‘service’ friendly organisations: This can be done either through first hand experience or third-party feedback. If you invest based on feedback from others, it is important to verify the facts before investing in the entity. Also with information revolution, a lot of information is available on the internet about companies. A proper source can help you identify good companies. You can also check websites of stock exchanges, Sebi, Irda and so on for information on companies and their promoters/management.
Good service at a premium: If you analyse stocks that have performed well over a period of time, they are the ones offering good service to its investors. Example: Tata Steel, HDFC, HDFC Bank, Colgate Palmolive, Hindustan Unilever, Hindalco, among others. These stocks usually attract premium on account of better servicing and as a result good market value.
Similarly in case of fund houses, funds which have good investor servicing have not only generated good profits for themselves but also have a dominant market share in the fund industry. For instance, HDFC mutual fund, ICICI Prudential mutual fund, SBI mutual fund and so on.
Similarly banks which offer good service are in fact able to raise money at a lower cost (HDFC Bank, SBI, Bank of Baroda). This is due to the fact that they incur additional cost to provide good investor service.
Conclusion: It happens at times that our investment in high return avenues turns bitter when we find that the service is not upto mark. Investors need to look at not only returns and safety of investment but also investor service. Also companies and fund houses should note that by providing good investor service they can actually lower their cost of funds and garner more funds.
The writer is a freelancer