Market crash: Here's what you MUST do & dont

[K.Karthik Raja]

Market crash: Here's what you MUST do & dont

The markets opened the year with a bang, crossed the 21,000 mark, and
then all hell broke loose as on January 21, it fell a record 1,408
points to close at 17,605. Trading was suspended for an hour on
Tuesday too, when the market crashed to a low of 15,532 points.

Finance Minister P Chidambaram blamed global market woes fuelled by US
recession fears for the market mayhem. Urging investors to stay calm,
he assured them that the nothing was wrong with the health of the
Indian economy. But that's hardly any consolation for those who lost
more than Rs 6 lakh crore (Rs 6 trillion) in a single day's trading.

While it's natural for you to be unnerved by these figures, being
panicky will not help you. Actually it's a once-in-a-lifetime
opportunity to buy good stocks with strong fundamentals, but be very
careful while doing so.

So here is a list of do's and don't to help you navigate your way in
the stock market.

Don't indulge in panic selling. Stay invested, it is time to buy
stocks and not sell. Since very few people can predict market
movement, NEVER try to time the market.

To be on the safe side, invest in mutual funds, and don't listen to
'experts' who mushroom all of a sudden and are eager to give you
formidable advice. If you are unsure about your research and is not
too comfortable with your own judgement, MFs are your best bet.

However, it does not mean that investing in MFs naturally eliminates
all risk associated with investing in the markets. Mutual funds that
to their experience, research and anlysis are in abetter position to
analyse risks than any lay 'expert'.

Since only the 'right' professional can help you achieve your
financial goal, by selecting the right investment options for you, do
spend time to zero in on the right advisor before you start investing.
Remember you need to be patient, be it choosing your financial guide
or getting returns from your investments.

Remember, you should plan for the long term. We suggest you diversify
a bit, looking at stocks, mutual funds, commodities and gold (for a
longer-term).

However, there is a golden rule that applies to all and sundry.
Regardless of what market experts tell you, it is critical to
understand where you stand and where you want to be. Also, what level
and amount of investment are you comfortable with. Therefore, take
some time to evaluate your risk-bearing capacity.

Now that you have decided to enter the market, maybe for the first
time, do follow the following rules. It is imperative that you are
aware of the traps and dangers of investing in stocks and exercise
maximum caution.

DO's

Always deal with the market intermediaries registered with the
Securities and Exchange Board of India (Sebi) / stock exchanges.
Complete all the required formalities of opening an account properly
(client registration, client agreement forms, et cetera).
Always insist on contract notes from your broker. In case of doubt of
the transactions, verify the genuineness of the same on the exchange
Web site (http://www.bseindia.com / http://www.nseindia.com).
Ask for and sign 'Know Your Client Agreement.'
Read and properly understand the risks associated with investing in
securities/derivatives before undertaking transactions.
Assess the risk-return profile of the investment as well as the
liquidity and safety aspects before making your investment decision.
Ask all relevant questions and clear your doubts with your broker
before transacting.
Invest, based on sound reasoning after taking into account all
publicly available information and on fundamentals.
Give clear and unambiguous instructions to your broker / agent /
depository participant.
Be vigilant in your transactions. Insist on a contract note for your
transaction.
Scrutinise minutely both the transaction and the holding statements
that you receive from your Depository Participant.
Keep copies of all your investment documentation.

Handle Delivery Instruction Slips (DIS) Book issued by DPs carefully.

Insist that the DIS number are pre-printed and your account number
(Client ID) is pre-stamped.
In case you are not transacting frequently make use of the freezing
facilities provided for your Demat Account.
Always settle the dues through the normal banking channels with the
market intermediaries.
Before placing an order with the market intermediaries please check
about the credentials of the companies, its management, its
fundamentals and recent announcements made by them and various other
disclosures made under various regulations. The sources of information
are the websites of exchanges and companies, databases of data vendor,
business magazines, et cetera.
Deliver the shares in case of sale or pay the money in case of
purchase within the time prescribed.
Participate and vote in general meetings either personally or through
proxy.
Be aware of your rights and responsibilities.
In case of complaints approach the right authorities for redressal in
a timely manner.
Adopt trading / investment strategies commensurate with your risk-
bearing capacity as all investments carry risk, the degree of which
varies according to the investment strategy adopted.
Please carry out due diligence before registering as client with any
Intermediary. Further, investors are requested to carefully read and
understand the contents stated in the Risk Disclosure Document, which
forms part of investor registration requirement for dealing through
brokers in the stock market.
Be cautious about stocks, which show a sudden spurt in price or
trading activity, especially low price stocks.
Please be informed that there are no guaranteed returns on investment
in stock markets.


Market crash: Here's what you MUST dont


DON'Ts

Don't deal with unregistered intermediaries.
Don't fall prey to promises of unrealistic returns.
Don't invest on the basis of hearsay and rumours; verify before
investment.
Don't forget to take note of risks involved in the investment.
Don't be misled by rumours circulating in the market.
Don't be influenced into buying into fundamentally unsound companies
(penny stocks) based on sudden spurts in trading volumes or prices or
non-authentic favourable looking articles/stories.
Don't follow the herd or play on momentum - it could turn against
you.
Don't be misled by so called 'hot tips.'
Don't try to time the market.
Don't hesitate to approach the proper authorities for redressal of
your doubts/grievances.
Don't leave signed blank Delivery Instruction Slips of your demat
account lying around carelessly or with anyone.
Do not sign blank Delivery Instruction Slips and keep them with
Depository Participant or broker to save time. Remember your
carelessness can be very dangerous.