Households are putting more money into financial assets as slowing inflation reduces the value of gold
Rajhkumar K Shaaw and Santanu Chakraborty | Tue, Oct 04 2016. 07 19 PM IST | LiveMint
Mumbai: Indian investors are shifting savings into stocks like never before.
Mutual funds showed net buying of shares for a record 10th straight quarter in September, data from Bloomberg show. Households are putting more money into financial assets as slowing inflation reduces the value of gold, a traditional favourite.
Shibabrota Konar exemplifies the shift. He’s stopped buying exchange-traded funds backed by gold and now invests at least 15,000 rupees ($225) a month into stock funds. A jump in industry-wide accounts to a record 50 million at the end of August show he’s not alone.
“Gold has eroded wealth in the past three years, while stocks have taken off,” says Konar, a 43-year-old telecom engineer who lives in Mumbai. “Equity funds offer the best way to create long-term wealth. And I can invest in small amounts.”
Retail investors like Konar have been the main contributors to mutual funds’ growth since Prime Minister Narendra Modi took office in May 2014 with the biggest mandate in three decades. Assets with money managers swelled to an unprecedented 16 trillion rupees ($241 billion) in August, with stock plans making up 32% of the pie. The proportion was 20% in April 2014, data from the Association of Mutual Funds in India show.
Analysts cite several reasons for the trend:
The gush of money into funds has sent the nation’s small- and mid-cap stocks to a record, while providing companies with a growing pool of capital to tap for their initial share sales and helping the market weather events such as the U.K. vote to leave the European Union. Early signs suggest investors are looking past last week’s military offensive too. The S&P BSE Sensex has risen 1.7% in two days, recouping more than half of last week’s 2.8% tumble spurred by India’s attacks on Pakistan terrorist camps.
Optimism that slowing inflation may prompt the central bank to lower borrowing costs from a five-year low is also pulling investors toward stocks, says Mirae Asset Global Investments (India) Pvt. The new central bank governor Urjit Patel led a united monetary policy panel to cut interest rates at its first review on Tuesday. The Sensex closed with a third day of gains after the policy decision.
“It’s time to back up the truck for stocks,” said Gopal Agrawal, chief investment officer at Mirae Asset, which manages $600 million. “The migration to moderate-risk equity products like mutual funds is growing at a phenomenal pace because of their relative attractiveness” over alternatives such as bank deposits, he said.
Equity funds have attracted 1.63 trillion rupees from April 2014 through August this year, according to AMFI data. That’s more than the 934 billion rupees that Deutsche Bank AG estimates funds got between January 2002 and April 2014.
The market benefits from a regular stream of money flowing from savers setting aside a fixed amount every month as part of their mutual fund investment plan. The industry takes in 35 billion rupees monthly from 11 million investors aiming to smooth out market swings through averaging, according to AMFI.
“People have begun to invest with maturity,” said Nilesh Shah, chief executive officer of Kotak Mahindra Asset Management Co. The Mumbai-based money manager, which has $9.5 billion in assets, got new inflows on Thursday when the financial markets were jolted after the nation announced it attacked terrorist camps in Pakistan.
Demographic trends are also helping, said Navneet Munot, chief investment officer at SBI Funds Management Pvt., which has $18 billion in assets.
“The bulk of our population is under 35 years of age and this generation has a much higher risk appetite,” he said. “The millennials will drive the equity boom over the next five years.”
The optimism among Indian investors contrasts with skepticism from savers elsewhere. Inflows into Japan’s stock funds fell in July to the lowest since November 2012, and stayed near that level in August, data from the Investment Trusts Association in Japan show. Almost $90 billion was pulled from US mutual and exchange-traded funds for the year through August, even as the S&P 500 Index gained almost 20% from a February low, according to data compiled by Investment Company Institute and Bloomberg.
Indian families will probably buy $300 billion of equities in the next decade, six times as much as they did in the past decade, Morgan Stanley said in a May 2015 report.
“You will be surprised with the amount of money that will come into the markets over the next three to five years,” Anand Shah, the chief investment officer at BNP Paribas Asset Management India Pvt., said in an interview in Mumbai. “The incentive to buy real estate and gold is diminishing by the day.” Bloomberg
By Sunil Dhawan | ECONOMICTIMES.COM | Jul 20, 2016, 02.53 PM IST
Gold in its physical form — jewellery or ornaments — has always been popular among Indians, especially women. Unlike in the past when gold was only considered a hedge against inflation and held entirely in physical form, today it finds its place even in an investor’s portfolio and largely as paper gold. Earlier as gold exchange traded funds (Gold ETFs) and now as Sovereign Gold Bonds (SGBs), paper gold offers many advantages to Indian investors now.
The Series I of SGB 2016-17 is currently open for subscription from July 18 to 22. The fourth tranche of SGB, its price has been fixed at Rs 3,119 per gram.
However, before you buy SGBs, you need to be clear about why you need to invest in gold. Is it to meet a financial goal or for pure investment purposes? If it is for the former, then most financial planners will suggest not having more than 10 per cent of the total portfolio in gold. Aniruddha Bose, Director & Business Head, FinEdge Advisory, says, “In our view, investors shouldn’t overexpose themselves to SGBs. They may form 5-10 per cent of the overall asset allocation of an investor.”
Window of opportunity
The bonds will not be available all year round. The government will keep coming out with primary issue of different tranches of SGBs for open purchase. This could typically happen every 2-3 months and the window will remain open for about a week. For investors looking to purchase SGBs between two such primary issues, the only way out is to buy earlier issues (at market value) which are listed in the secondary market.
The biggest advantage of SGBs is clearly on the tax front. The 2016-17 Budget had proposed that the redemption of the bonds by an individual be exempt from the capital gains tax. Therefore, holding till maturity has its tax advantage. Redeeming in stock exchange may, however, result in capital gains or loss and one may have to pay tax accordingly. Interest on the bonds is, however, fully taxable as per the tax rate of an investor. For someone in the 10, 20, or 30 per cent tax bracket, the post-tax return comes to 2.47, 2.18 and 1.9 per cent respectively.
The initial cost of owning physical gold in the form of bars, coins is around 10 per cent and even higher for jewellery. SGBs and Gold ETFs are cost-effective as there is no entry cost in either. In the latter, the expense ratio could be around 1 per cent. Still, owning gold in paper form is cost-effective than owning physical gold.
The returns from gold can be highly volatile, especially over the short term. Therefore, link a long term goal to your gold investments. Goals that are at least 7-8 years away are ideal as SGBs mature after 8 years. The investor could be given an option to roll over his holdings for an additional period. However, one may withdraw prematurely five years from the issue date on interest payment dates. Although one can exit in the secondary market anytime, the liquidity and price risk may exist. There may not be enough buyers for the quantity offered by you and even the market price may be low. These are the concerns when one wants to exit from an investment in a hurry. Goals such a children’s education, marriage, or your own retirement, which are eight years away or more, may be linked to investment in SGBs.
Identify a long term goal and estimate its inflated cost. Calculate the amount you need to save towards it. Similarly, find out the investment required towards other long term goals. Earmark not more than 10 per cent of the total monthly investments towards all your long term goals into SGBs. Bose says, “From a financial planning standpoint, it makes sense to take a larger exposure to more aggressive assets such as equities (as opposed to gold) for the fulfilment of long term goals.”
Treat investment in every tranche (primary issue by government) of SGBs as SIP. Alternatively, Bose suggests, “SGBs are actively traded on the exchanges, so one could always buy more of them at a later stage, from a portfolio balance standpoint.” But remember, not to invest in them when the linked-goal remains 2-3 years away. Let the existing investments in SGBs continue and make sure to redeem them at least a year before the goal to ensure the volatility in gold portfolio is minimal.
Returns in SGBs are market-linked and will depend on gold prices prevalent on maturity after eight years. “Buy SGBs keeping your overall asset allocation in mind, rather than just buying them blindly. Also, understand the risks – gold prices have already gone up sharply in the past year,” says Bose.
Rather than owning gold in physical form and not earning anything on it, SGBs mean owning gold and also earning interest on it. The government has fixed interest of 2.75 per cent per annum on the investment, with no compounding of interest. The interest shall be paid in half-yearly rests and the last one shall be payable on maturity along with the principal.
It will also be important to re-invest the half-yearly interest as the amount could be low and used up unnecessary. To put the interest amount in perspective, on an investment of Rs 1 lakh, Rs 2,750 received yearly yields Rs 22,000 after 8 years.
Gold ETFs provide much better liquidity than SGBs. Owning units is much easier than SGBs as it’s entirely online in the case of ETFs. The risk of owning and holding doesn’t exist in both. The only disadvantage of ETFs is that it won’t help you earn the additional interest of around 2 per cent per annum. So depending on how comfortable you are managing your investments online, choose either ETFs or SGBs.
Source : http://goo.gl/xBb4pN
By Jayant Pai | Jun 20, 2016, 07.00 AM IST | Economic Times
Every parent fondly looks forward to the day when children will begin earning a steady income. However, for Indian parents, it is difficult to sever the metaphorical umbilical cord even after their child secures financial independence.
There are various reasons parents do not shy away from advising their children on money matters. One, they feel that their naive children will be parted from their money if left to their own devices. Hence, right from the first payday, they will tell you about the virtues of saving and warn against reckless spending. Two, they do not want their children to make the same mistakes they made, be it a failed investment or a loan to a friend which was never returned. Three, errors of commission committed by close family members also play a part in conditioning parents’ thought process.
Why such advice may be less effective today: The previous generation was brought up on the belief that the collective wisdom of elders was indispensable. Today’s generation is a bundle of contradictions. On the one hand, they are avowedly individualistic. On the other, they are swear by the opinions of peers in social media on every topic, be it fashion, electronics or money. Hence, parental influence is waning.
While every generation thinks it knows best when it comes to finance and investments, today’s youngsters have more educational and decision-making tools at their disposal. These may be in the form of blogs, apps, portals and even robo-advisers/algorithms. In fact, they face a glut, rather than a drought, of information. Hence, parents may often be behind the curve.
Today, wealth managers are increasingly viewing such youngsters as an economically viable segment. Hand-holding newbies, with the hope of growing with them as they uptrade, is a strategic choice.
Should children listen to their parents? In most cases, the advice received from parents is well-meaning. That may not necessarily be true in case of advice from outsiders. However, good intentions alone are not sufficient to render it suitable. While certain home truths like avoiding borrowing for consumption or maintaining a high savings rate are worth heeding, others are better ignored.
For instance, many parents dissuade their children from investing in stocks and suggest they opt for fixed deposits or gold. This may stem either from their own poor experience in the stock market or a belief that stocks are risky and another form of gambling. However, by blindly heeding such advice, youngsters may do themselves a great disservice since they forego the power of compounding that equities offer.
Similarly, parents may consider real estate as a great investment option even if they have to avail of a heavy mortgage. Children should follow such advice only after considering the repercussions of paying EMIs for long tenures of 25-30 years. Also, some parents are averse to their children purchasing insurance policies, fearing that this is an invitation to disaster. Such superstitions should not stand in the way of protecting life, limb and health. In a nutshell, when it comes to parental advice, trust them, but verify the advice.
(By Jayant Pai, CFP & Head, Marketing at PPFAS Mutual Fund)
Source : http://goo.gl/iECSwU
Don’t tinker with your long-term investment plan. But it is always better to make some critical changes, based on new tax laws and instruments
Sanjay Kumar Singh | April 3, 2016 Last Updated at 22:10 IST | Business Standard
The start of a new financial year is a good time to review your financial plan and take stock of where you stand in relation to your goals. If new goals have emerged, this is the time to make fresh investments for these. While having a steady approach is a virtue here, make some adjustments in the light of developments that have occurred over the past year.
Large-cap funds have fared worse than mid-cap and small-cap ones over the past one year (see table). Over this period at least, the conventional wisdom that large-cap funds tend to be more resilient than mid-cap and small-cap ones in a declining market was overturned. Nilesh Shah, managing director, Kotak Mahindra AMC, offers three reasons. “For the bulk of the previous year, FIIs were sellers of large-cap stocks, whereas domestic institutional investors (DIIs) were buyers of mid- and small-caps. Large-cap stocks are also more linked to global sectors like metal and oil, whereas mid- and small-caps are linked to domestic sectors. The latter has done better than the former, leading to stronger performance by mid- and small-cap stocks. Large-cap stocks’ earning growth decelerated or remained subdued throughout last year while mid- and small-caps delivered better growth,” he says.
Despite last year’s anomalous performance, investors should continue to have the bulk of their core portfolio, 70-75 per cent, in large-cap funds for stability, and only 20-25 per cent in mid-cap and small-cap funds. Large-caps could also fare better in the near future. Says Ashish Shankar, head of investment advisory, Motilal Oswal Private Wealth Management: “IT, pharma and private banks, whose earnings have been growing, will continue to do so. Public sector banks and commodity companies, whose earnings have been bleeding, will not bleed as much. Many might even turn profitable. FII flows turned positive this month and FIIs prefer large-caps. With the US Fed saying it won’t hike interest rates aggressively, global liquidity should improve. If FII flows continue to be stable, large-caps should do better.” Valuations of large-caps are also more attractive.
Among debt funds, the category average return of income funds and dynamic bond funds was lower than that of short-term, ultra short-term and liquid funds (see table). Explains Shah: “Last year, while Reserve Bank of India (RBI) cut policy rates, market yields didn’t soften as much. The yield curve became steeper. The short end of the curve came down more than the long end, which is why shorter-term bonds did better than longer-term gilts.”
Stick to funds that invest in high-quality debt paper, in view of the worsening credit environment. Shankar suggests investing in triple ‘A’ corporate bond funds. “Today, you can build a triple ‘A’ corporate bond portfolio with an expected return of 8.5 per cent. Many of these have expense ratios of 40-50 basis points, so you can expect annual return of around eight per cent. If bond yields come down, you could end up with returns of 8.5-9 per cent. If you redeem in April 2019, you will get three indexation benefits, lowering the tax incidence considerably.” Investors who have invested in dynamic bond funds should hold on to these. “A rate cut is expected in April. Yields will drop and there may be a rally in the bond market,” says Arvind Rao, Certified Financial Planner (CFP), Arvind Rao Associates.
CHANGES YOU NEED TO MAKE
- Fixed deposit rates from banks will be better than returns from the post office deposits in the new financial year
- Choose your tenure first and then, do a comparison of bank fixed deposit rates before making the final choice
- Invest in the yellow metal via gold bonds
- If your liabilities have increased, revise term cover upward
- Revise health cover every three-five years to deal with medical and lifestyle inflation
- Revise sum assured on home insurance if you have added to household assets
- Conservative investors should invest in PPF at the earliest
- Those who can take some risk should bet on ELSS funds via SIP
- Invest Rs 50,000 in NPS
Traditional fixed income
The recent cut in small savings has jolted conservative investors. The rates on these have been linked to the average 10-year bond yield for the past three months. These will be revised every quarter now, make them more volatile. “People who want to invest in debt and want sovereign security should continue to invest in Public Provident Fund (PPF). No other instrument gives a tax-free return of 8.1 per cent with government security,” says Rao.
As for time deposits, financial planner Arnav Pandya suggests, “From April, fixed deposits of banks will give better returns than those of the post office. Decide on your investment tenure, see which bank is offering the best rate for that tenure, and invest in its deposit.” Lock into current rates fast, as even banks are expected to cut their deposit rates.
Tax-free bonds are another good option. Nabard’s recent issue carried a coupon of 7.29 per cent for 10 years and 7.64 per cent for 15 years. Beside getting tax-free income, investors stand to get the benefit of capital appreciation if interest rates are cut.
“People who have some risk appetite may also look at debt mutual funds and fixed deposits of stable companies,” adds Rao.
The sharp run-up in gold prices over three months, owing to the rise in risk aversion globally, took most people by surprise. The sudden spurt emphasises the need to stay diversified and have a 10 per cent allocation to the yellow metal in your portfolio. However, instead of using gold Exchange-traded funds (ETFs), which carry an expense ratio of 0.75-1 per cent, invest via gold bonds, which offer an annual interest rate of 2.75 per cent. The Budget made gold bonds more attractive by exempting these from capital gains tax at redemption.
Start investing in tax-saving instruments from the beginning of the year. “Don’t leave tax planning for the end of the year, otherwise you may have to scramble for funds,” says financial planner Ankur Kapur of ankurkapur.in. For those with the money, Pandya suggests: “Invest the entire amount you need to in PPF before the April 5. That will take care of tax planning for the year and you will also earn interest on your investment.”
Investors with a higher risk appetite could start a Systematic Investment Plan (SIP) in an Equity Linked Savings Schemes (ELSS) fund, which can give higher returns. “If you invest early in the year via an SIP, you will reap the benefit of rupee cost averaging,” says Dinesh Rohira, founder and Chief Executive Officer, 5nance.com. Pankaj Mathpal, MD, Optima Money Managers suggests linking all tax-related investments to financial goals.
If you live in your parents’ house and pay rent to them to claim House Rent Allowance benefits, which is perfectly legal, get a rent agreement prepared.
With 40 per cent of the National Pension System (NPS) corpus having been made tax-free at withdrawal in this Budget (the entire corpus was taxed earlier), this has become more attractive. “Open an NPS account if you have not done so already and enjoy the additional tax deduction of Rs 50,000,” says Anil Rego, CEO & founder, Right Horizons. In view of the low returns from annuities, into which 60 per cent of the final corpus must be compulsorily invested, don’t invest more than Rs 50,000.
Tax deduction under Section 24 is available on the interest repaid on a home loan. “Buying a property to avail of the benefit is not advisable if the family has a primary residence,” says Rego.
While reviewing your financial plan, check if the term cover is adequate. A family’s insurance cover should be able to replace the breadwinner’s income stream. Financial planners take into account household expenses, goals like children’s education and marriage, and liabilities like home loans when deciding on a person’s insurance requirement. “If goals have changed or liabilities have increased, raise the amount of cover,” suggests Mathpal. Kapur says the premium rate is likely to be lower if you buy the term plan before your birthday.
Your health insurance cover might also need to be raised to take care of medical inflation. The same holds true for household insurance if you have reconstructed your house and the structure has become more expensive, or if you have added expensive assets. Rohira suggests buying add-on covers like accidental insurance and critical health insurance for comprehensive protection.
In an effort to make the Gold Monetisation Scheme more customer-friendly, the RBI today said depositors will be able to withdraw medium-term (5-7 year) and long-term government deposits (12-15 years) pre-maturely after the minimum lock-in period, though with a penalty.
By: PTI | Mumbai | January 21, 2016 11:07 PM | Financial Express
In an effort to make the Gold Monetisation Scheme more customer-friendly, the RBI today said depositors will be able to withdraw medium-term (5-7 year) and long-term government deposits (12-15 years) pre-maturely after the minimum lock-in period, though with a penalty.
The Reserve Bank today made a few amendments to its Master Direction on the Scheme.
The modifications, it said, have been made in consultation with the government to make the Scheme “more customer-friendly”.
The rate of interest on the deposits will be decided by government and notified by the RBI from time to time.
The current rate of interest as notified by the government on medium term deposit is 2.25 per cent per annum and on long term deposit is 2.50 per cent per annum.
“The depositors will be able to withdraw medium term and long term government deposits pre-maturely after the minimum lock-in period of three years in the case of medium term deposits and after five years in the case of long term deposits,” it said.
However, there will be penalty in the “form of lower rate of interest for premature withdrawals” depending upon the actual period for which the deposit has run.
Further in the case of large tenders of gold, the RBI said the metal can be deposited directly with refiners wherever they have the assaying capacity.
“This will reduce the time lag between the time the raw gold is deposited and it starts bearing interest,” RBI said.
RBI also clarified that government will pay the participating banks a total commission of 2.5 per cent (1.5 per cent handling charges and 1 per cent commission) in the first year.
The Scheme will be reviewed regularly based on feedback so as to address any implementation issue and to make it more customer friendly.
Last week, Economic Affairs Secretary Shaktikanta Das had said under the Gold Monetisation Scheme more than 500 kg of gold has already mobilised and the Scheme was picking up.
Under the Gold Monetisation Scheme (GMS), 2015, banks will collect gold for up to 15 years to auction them off or lend to jewellers from time to time.
In November last year, Prime Minister Narendra Modi had launched a scheme to channelise gold worth over Rs 52 lakh crore lying with households into the banking system and floated paper bonds to curb its imports that have made India the largest buyer of gold in the world.
India imports a staggering 1,000 tonnes of gold every year, draining out foreign exchange and putting pressure on the fiscal deficit. An estimated 20,000 tonnes of gold worth over Rs 52 lakh crore is lying with households and temples.
The RBI further said the principal and interest on Short Term Bank Deposit (STBD) would be denominated in gold.
In the case of Medium and Long Term Government Deposit (MLTGD), the principal will be denominated in gold.
“However, the interest on MLTGD shall be calculated in Indian Rupees with reference to the value of gold at the time of the deposit,” the RBI said in its amended circular.
Resident Indians (Individuals, HUFs, Proprietorship & Partnership firms, Trusts including Mutual Funds/Exchange Traded Funds registered under SEBI (Mutual Fund) Regulations and Companies) can make deposits under the Gold Monetisation Scheme.
Joint deposits of two or more eligible depositors are also allowed under the scheme and the deposit in such case would be credited to the joint deposit account opened in the name of such depositors.
The existing rules regarding joint operation of bank deposit accounts including nominations would apply to these gold deposits.
All deposits under the scheme would be made at the Collection and Purity Testing Centre (CPTC).
“Provided that at their discretion, banks may accept the deposit of gold at the designated branches, especially from the larger depositors.
“….banks may, at their discretion, also allow the depositors to deposit their gold directly with the refiners that have facilities to carry out final assaying and to issue the deposit receipts of the standard gold of 995 fineness to the depositor,” the RBI circular added.
The government will notify the list of BIS certified CPTC / refiners under the Scheme and would be communicated to the banks through Indian Banks’ Association (IBA).
Abhijit Gulanikar | Tuesday, 17 November 2015 – 8:30am IST | Agency: dna | From the print edition
The track record of gold, before adjusting for transaction costs, for giving returns is fair.
For Adwait and his family Diwali is festive time to be enjoyed with family and friends. It is also time to buy gold. Along with Diwali, he buys gold every year during Akshaya Tritiya. He buys gold during all important life events like birth of his daughter, wife’s 30th birthday. This gold has in most cases bought as ornaments for his wife, daughter or himself. He recons that large portion (around 30-35%) of his savings is in form of gold. Adwait is not alone and many Indians have similar habits making India the largest purchaser of gold.
This mindset of investing in gold is received wisdom we have learnt from our forefathers and has been a long tradition in India. But this tradition is from era when financial instruments were not well developed. Today investments that are safer than gold will provide returns equal to or higher than the return on gold. By safer I mean both physical security and price security (capital guarantee). Most financial instruments are in electronic form or physical receipts that can be encashed only after due authentication by the owner (signature/password-OTP). Gold is, on the other hand, subject to theft and robbery. One needs to protect it buy hiring safe deposits lockers or other similar arrangements. Gold is generally safe from point of price security but it is also subject to market fluctuations like other commodities. We have had period where the price of gold has not recovered to previous peak for 4-5 years. Like price of gold is currently around Rs 26,000 for 10 gram, lower than Rs 31,000 we had three years ago.
The track record of gold, before adjusting for transaction costs, for giving returns is fair. Analysis of gold prices over last 40 years reveals that average return for long-term holding (10 years or more) is slightly lower than 10%, whereas inflation during the same period averages around 8%. Gold thus does provide positive real returns, i.e returns higher than the rate of inflation.
Above analysis is purely theoretical based exchange traded prices of gold. In real life the return will be significantly lower on account of transactions costs. Adwait has paid making charges every time he has purchased the ornaments. Making charges vary considerably from jeweller to jeweller but are substantially higher than zero transaction charge for making a bank fixed deposits or buying national saving certificate. Adwait has remade old ornaments from time to time and has paid a deduction for old ornament, and at the same time making charges for the new ornament. Adjusting for these costs and cost of safe keeping the return on gold would not be higher than rate of inflation.
Adwait should go ahead with his tradition of purchase of gold during Diwali as it has a huge sentimental value. Display of ornaments during social occassions also has a huge social value. However it would be judicious to reduce the amount of gold that he purchases. For important life events like his daughters 10th birthday, instead of buying a gold chain, he could invest the same amount in a long-term fixed deposit or mutual fund. Gold purchases should be done purely for sentimental/social reasons and not as part of his financial planning.
The writer is chief officer-business strategy, SBI Life Insurance
Source : http://goo.gl/w3wKkv
The minimum deposit at any one time shall be raw gold — bars, coins, jewellery excluding stones and other metals — equivalent to 30 grams of gold of 995 fineness.
By: ENS Economic Bureau | Mumbai | Published:October 23, 2015 12:58 am | Indian Express
The Reserve Bank of India (RBI) on Thursday issued directions to all scheduled commercial banks on the implementation of the Gold Monetisation Scheme which will replace the Gold Deposit Scheme of 1999.
According to the guidelines banks will be allowed to fix their own interest rates on gold deposits.
The deposits outstanding under the Gold Deposit Scheme will be allowed to run till maturity unless the depositors prematurely withdraw them, according to a press release issued by the RBI. The central bank said that resident Indians that include individuals, HUFs (Hindu Undivided Families), trusts including mutual funds/exchange traded funds registered under Sebi (mutual fund) regulations and companies can make deposits under the scheme.
The minimum deposit at any one time shall be raw gold — bars, coins, jewellery excluding stones and other metals — equivalent to 30 grams of gold of 995 fineness.
“There is no maximum limit for deposit under the scheme. The gold will be accepted at the Collection and Purity Testing Centres (CPTC) certified by Bureau of Indian Standards (BIS) and notified by the Central government under the scheme. The deposit certificates will be issued by banks in equivalence of 995 fineness of gold,” it said.
The RBI notification in this regard comes ahead of the formal launch of the scheme by Prime Minister Narendra Modi on November 5. The gold deposit scheme is aimed at mobilising a part of an estimated 20,000 tonnes of idle precious metal with households and institutions.
As per the guidelines, banks will be free to set interest rate on such deposit, and principal and interest of the deposit will be denominated in gold. “Redemption of principal and interest at maturity will, at the option of the depositor be either in Indian rupee equivalent of the deposited gold and accrued interest based on the price of gold prevailing at the time of redemption, or in gold. The option in this regard shall be made in writing by the depositor at the time of making the deposit and shall be irrevocable,” it said.
The interest will be credited in the deposit accounts on the respective due dates and will be withdrawable periodically or at maturity as per the terms of the deposit, it said. “The designated banks will accept gold deposits under the Short Term (1-3 years) Bank Deposit (STBD) as well as Medium (5-7 years) and Long (12-15 years) Term Government Deposit Schemes. While the former will be accepted by banks on their own account, the latter will be on behalf of Government of India,” it said.
The short term bank deposits will attract applicable cash reserve ratio (CRR) and statutory liquidity ratio (SLR), it said.
Source : http://goo.gl/kT3v54
September 18, 2015 by Chandrakant Mishra | PlanMoneyTax.com
SBI Gold deposit Scheme is there to give you recurring income while original gold will remain intact. Of course from this income you can buy more gold as well. In either words when you put your gold in this scheme it starts to grow. The SBI gold deposit scheme is superseded by the Gold Monetization scheme. This scheme is more flexible and gives better interest.
SBI Gold Deposit scheme accepts all types of gold whether it is jewelry or bullion. The scheme will give interest on the pure gold irrespective of the form
Should I Deposit The Jewelry?
You can deposit the gold jewelry in Gold deposit scheme, But you should beaware that the gold deposited to this scheme is subjected to the melting. Hence, it is not advisable to deposit those jewelry which are used. Instead, you should deposit the idle gold. You can deposit those jewelry which are old fashioned and kept as an asset.
Why Should I Deposit in SBI Gold Deposit Scheme?
Depositing your idle jewelry in SBI Gold Deposit Scheme will give you many benefits.
- Peace of mind. You need not to be concerned about its safety. Not threat of burglary or stealing.
- You will get the interest for nothing.
- Your gold will get tested and you will get pure gold after that. No melting assaying charge.
- You will save the locker charge.
- You will serve the nation by reducing the import bill.
Tax Benefits of SBI Gold Deposit Scheme
- No income tax on the interest from this scheme
- No capital gain tax if you take back cash instead of the gold after the maturity.
- You will not be charged wealth tax for the deposited gold.
Will Your Gold Stay Safe?
Your gold deposit will be as safe as your money in the bank. Actually banks do not put all the gold in its safe instead major chunk of the gold is given to jewelers as loan or it remains in RBI mint. Bank gets interest over it and pays the majority of this to the depositor.
What interest rate will I earn?
Interest rate is not very lucrative in SBI Gold Deposit Scheme. It is from 0.75% to 1%. Don’t frown; you get nothing when you keep your gold in home. As well this interest is in gold currency. This simply means that if you deposit 1 Kg Gold the bank will give price of 10 gram gold (1% of 1 Kg) after one year. Assume gold price doubles in one year then effectively you are getting 2% interest rate.
Also don’t forget to add your expense of locker.
Why Interest Rate is so low?
- Gold do not produce anything itself such as farm land.
- People don’t take gold jewelry on rent such as property.
- You will get your whole gold with all the appreciated value.
What are the restrictions?
Now government has eased the restrictions from SBI Gold Deposit Scheme. The most important is the reduction of minimum tenure. Now you can deposit your gold for 6 months as well. Earlier the minimum tenure was 3 years.
You have to deposit more than 500 gram of the gold for this scheme. This is a major deterrent. Hopefully government will give some relaxation in weight also. The Gold Monetization Scheme has the minimum limit of 30 gram only.
What will I do if I need fund for exigency?
You can take loan from any branch of the SBI by mortgaging your gold deposit certificate. It same as you take loan by depositing your FD certificate. Loan can be taken up to the 75% of the gold value. Interest rate will be lower than the personal loan.
Where should I Deposit My Gold ?
Not all banks provide Gold Deposit Scheme. Till now only SBI this scheme and at the designated branches only. But now RBI has given permission to the banks to start Gold Deposit scheme on its own. Banks do not need prior permission. So in future You can expect that more banks will start this scheme.
What is the procedure of SBI Gold Deposit Scheme?
Go to your nearest branch with your ornaments or gold bar biscuits etc. Bank will take the gold and give you the provisional certificate. Bank will send the gold to the reserve bank gold mint. Purity of the gold will be determined there and it is melted. According to the purity the weight of the gold will be fixed. After that Bank will give you the Final certificate. You can demand standard certificates of 500 gm, 1000 gm or 2000 gm also. Either you can opt for statement or passbook also. Note often it may happen that actual weight of the gold becomes less because of impurity. Don’t fret, you must rely on RBI.
How Will I Get Back My Gold?
After Completion of the tenure you can claim your gold with the interest. For the Interest you have the option of cumulative and non cumulative.
Either you can take the cash instead of the gold. No capital gain tax will be charged in this amount.
How can I check that Gold returned is pure?
Gold returned will 0.999 finesse pure, certified by RBI Mint. It is the purest form of the gold. It will be in bar form.
How Gold Deposit Scheme Works
Banks give your gold to the jewelers on loan. Bank earns interest on it. Major part of the interest is given to the customer.
Source : http://goo.gl/SwS7e9
Could be priced at par with different agencies, banks & jewellers, or a tad higher, considering production costs
By: Prasanta Sahu and Banikinkar Pattanayak | New Delhi | September 23, 2015 9:25 AM | Financial Express
Move over gold coins with images of the queen of England. Come Gandhi Jayanti, Indians can lap up their very own sovereign gold coins, adorned with the image of the Ashok Chakra.
The government has decided to launch the sovereign gold coin from October 2 so that people can easily take advantage of it during the Dhanteras — when the purchase of the yellow metal is considered auspicious — as well as Diwali in November, two sources familiar with the development told FE. The India Government Mint, which operates four mints in the country, will produce the gold coins, they added.
Initially, the India Gold Coin could be priced in step with those sold by different agencies, banks and even jewellers, or slightly higher, taking into account the production costs, one of the sources said. Although a decision on the exact nature of pricing is yet to be made, the premium over the market price of gold coins will likely be minimal, unlike the huge premiums people have to pay for buying the ‘gold sovereign’ of England, he added.
The move was part of a broader government strategy announced in the Budget for 2015-16 to enhance investment options for people and also trim imports of gold to contain their damaging impact on trade balance. Announcing the proposal, finance minister Arun Jaitley had said: “Such an Indian Gold Coin would help reduce the demand for coins minted outside India and also help to recycle the gold available in the country.”
Apart from catering for people investing in usual gold coins or importing the ‘gold sovereign’ of England, even with a premium, it was also felt that despite being the world’s top consumer of the precious metal traditionally (Only in 2013, China surpassed India as the biggest bullion consumer), the country didn’t have a sovereign coin to offer.
Some industry executives also believed that the coins would also promote the concept of ‘Make In India’ globally.
Earlier this month, the Cabinet approved two schemes aimed at monetising household gold and selling sovereign gold bonds, which were also announced in the last Budget. While the monetisaiton schemes aims to tap household gold stocks of around 22,000 tonnes, through the bond scheme, the government wants to shift part of the physical gold purchased every year for investment into the ‘demat’ gold bonds.
Having hit as high as 362 tonnes in 2013, the country’s demand for gold coins and bars dropped by a half in 2014, thanks to a raft of restrictions on the precious metal imports, including a 10% basic customs duty, to contain a runaway current account deficit. In the first half of 2015, the demand for coins and bars stood at just 77.4 tonnes.
Source : http://goo.gl/w72lYK
If you can re-balance your portfolio once a year, separate equity and debt funds are better
Priya Nair | Mumbai | November 12, 2014 Last Updated at 21:59 IST | Business Standard
It’s raining returns on mutual fund investors with both equity and debt funds seeing good growth. In a bid to take advantage of this, fund houses are launching funds that invest across asset classes: equity, debt and gold. But should investors go for such funds or is it better to invest separately in equity and debt funds? Franklin Templeton India’s Multi-Asset Solution Fund’s new offer closes on November 21. The fund will invest in existing schemes of Franklin Templeton and ETFs.
“We believe investors need to stay invested across asset classes at all points in time, irrespective of whether one asset class is doing well or not. To this extent, there is no sanctity behind timing a multi-asset fund now. Those investors who can do an occasional re-balancing, say annually, might as well hold separate equity and income funds, says Vidya Bala, head of mutual fund research, FundsIndia.com.
A pure equity or a pure fixed income fund may give better returns if seen from one point to another. But in a portfolio, investors need dynamic allocation and they should be able to move between asset classes smoothly. A multi-asset fund will allow this automatically, says Harshendu Bindal, president, Franklin Templeton Investments (India).
For retail investors, re-balancing portfolios, that is, shifting from equity to debt funds will involve transaction costs and can also be time consuming. But investing in a multi-asset fund can give diversification across asset classes and automatic asset re-balancing with exposure to a single fund. “But the disadvantage is that they are mostly fund of funds and, hence, receive only debt status for tax purposes and not too tax efficient,” says Bala. This means that if you stay invested for three years, you will be taxed 20 per cent with indexation. Unlike this, in a pure equity fund, there is no tax after one year. The expense ratio, too, could be higher due to the fund of fund structure, since expenses will be over and above the expenses charged by the underlying schemes.
Another disadvantage is that being a fund of fund, only funds from the same fund house will be available. Hence, the best fund in each category or asset class may be lost, Bala adds.
Explaining the rationale behind investing in gold in the current market Bindal says gold is a traditional hedge against inflation, which is useful given India’s high inflation rates.
R Sivakumar, head-fixed income, Axis Mutual Fund says that multi-asset funds are meant for long-term investors, who are not investing in a particular asset because of the cyclical returns from that asset. “In any asset allocation pattern, you will always have a certain amount in all assets. The advantage of doing this through a fund is that fund will always sell the asset that is over-performing and buy the asset that is under-performing,” he says.
According to data provided by Value Research, Axis Triple Advantage Fund, which invests in equity, debt and gold is the largest fund in this category with assets under management of over Rs 500 crore. It has given returns of 14.64 per cent over one-year period. The fund invests in direct equities and fixed income and in gold exchange-traded funds.
Some other multi-asset funds are Canara Robeco InDiGo, which has given returns of 1.06 per cent over one-year, Birla Sun Life Financial Planning (Aggressive Plan) – 39.46 per cent and Union KBC Asset Allocation Fund Moderate Plan – 15.62 per cent.
Ideally, such funds should have a minimum investment horizon of at least three years. Investors can have a multi-asset fund for the base asset allocation and use separate equity and diversified funds for incremental investment, Sivakumar adds.
Source : http://goo.gl/mcN848
First-time investors often find it difficult to choose the right option.
Sanket Dhanorkar, ET Bureau | Nov 18, 2013, 05.59AM IST | Economic Times
First-time investors often find it difficult to choose the right option. Sanket Dhanorkar helps you navigate the unchartered waters.
It is not an easy time to be an investor. Even though you may be spoilt for choice, there is a high degree of volatility across asset classes. This means that one has to be extra cautious while choosing investments. Whether you are opting for equity, fixed income, property or gold, the current environment will punish you for rash or untimely decisions. For those who have just started saving, taking the initial steps into the world of investing is even more daunting.
For first-time investors, identifying the right initial investment can be a challenge. Where should I begin? Should I play safe and invest in a fixed-income instrument that offers guaranteed returns? Should I go for high-growth investments like stocks or equity mutual funds? You have to be careful with your choice to ensure that you begin on a solid footing and build a stable foundation. It should provide a sense of confidence as you move ahead. As Lao Tzu, the Chinese philosopher, said, ‘A journey of a thousand miles begins with a single step.’ Here’s a helping hand as you take your first step.
For some, investing in stocks is akin to gambling in a casino. However, people have also made fortunes from stocks. Some of your friends, relatives or acquaintances will recount their experiences of doubling or trebling their money within a short span of time. Naturally, this gets you thinking. Should I try my hand at the stocks game? How can I make handsome gains from equities? More often than not, you take the plunge. You open a demat and trading account, and make your initial purchase—possibly a strong blue-chip company that you admire, or an emerging company you have heard a lot about. Either way, this may not be the ideal route for everyone.
Why to invest
When you invest in stocks, make sure you do so for the right reasons. If you are looking to make quick gains and exit, then you are setting yourself up for long-term pain. Unless you are able to time your entry impeccably, you cannot earn good returns consistently. Equity is an asset class that rewards you the most if you stay invested for a reasonably long period of time. Hemant Rustagi, CEO, Wiseinvest Advisors, urges investors not to treat it as a source of excitement. “Stock investing is not a gamble. It is a serious investment opportunity,” he says.
Where to begin
Test the waters before jumping into the deep end of the pool. Mutual funds are the ideal starting point as these take care of the problem of picking the stocks yourself. Neeraj Chauhan, CEO, Financial Mall, insists, “For those just starting out, it is better to leave stock-picking to a professional fund manager.” Within mutual funds, first-time equity investors can opt for hybrid funds to get a taste of equities. Debt-oriented hybrid funds typically invest a chunk of the money in debt instruments, with a dash of equity thrown in. An equity-oriented balanced fund will take you on a learning curve. Those who can take on some risk can even opt for a diversified equity fund or an ETF. Srikant Meenakshi, director, FundsIndia, says, “Those who are easily discouraged by market volatility, but want a flavour of equity in their portfolio, should consider a balanced fund.”
If you are keen to dabble in stocks, be ready for some heartburn. The first few picks will give you an understanding of the market. Even if you make mistakes, you will learn from the experience. However, put in only small sums initially. If your stock picks turn out to be winners, don’t be tempted to throw in your entire money in search of more such gains. The market has a way of bringing you down just when you start to think that only the sky is the limit.
Most people prefer to play it safe while making their first investments. They usually put their first savings in a fixed deposit with their bank. Debt instruments offer assured returns, are easy to understand and do not require as much homework as equities or real estate. This asset class offers multiple options to the investor, each with its own unique features. This may lead to confusion for the newbie investor.
Why to invest
Fixed-income products are the cornerstone of an individual’s investment portfolio. Whether it is the humble bank fixed deposit, the PPF or a government bond, these provide stability to your portfolio. Experts concur that any asset allocation plan should include fixed income or debt. Pankaaj Maalde, financial planner, Apnapaisa .com, says, “Every portfolio should have an allocation to debt to ensure a solid foundation.” Even the most sophisticated, risk-savvy investors would do well to put a part of their money in debt, which would protect their portfolios from a sudden fall in the riskier asset classes.
Where to begin
Be clear about what you want when you invest in debt. If you are looking for a regular stream of money and the preservation of capital, then a simple fixed deposit that pays interest every month or quarter makes sense. If you do not need the regular inflow, choose the cumulative option of the fixed deposit or go for NSCs. The PPF is a long-term investment that locks up your money for 15 years. Simply leaving your money in safe, fixed-income instruments is not a productive long-term solution. You will be lucky if you beat inflation with these investments.
The tax incidence is another important point to consider. Chauhan argues, “For those in the higher tax brackets, it makes more sense to invest in instruments that give higher post-tax returns. For those in the lowest tax bracket, investment in fixed deposits is a good idea.”
However, to get more out of fixed income, you will need to move a bit higher up the risk ladder. Bond funds and FMPs provide a good alternative to traditional instruments as these can offer decent capital appreciation, even though the returns are not guaranteed.
With gold prices going through a multi-year rally, investors have started looking at the metal as another asset class in their portfolio. However, many people have given undue importance to gold as an investment. First-time investors are at risk of putting their savings in the asset for all the wrong reasons.
Why to invest
Gold is seen as one asset whose prices can never go down. If you have also been led to believe this, you need a reality check. True, gold provides a good hiding place when there is turmoil all over. However, only recently, we saw gold prices tank by more than 20% in a matter of weeks. Invest in gold because it has little correlation with other asset classes, such as equities and debt, which helps diversify the portfolio. Jayant Manglik, president, retail distribution, Religare Broking, agrees. “Gold adds an element of diversification to the portfolio,” he says.
Where to begin
“Make a clear distinction about buying gold for consumption purposes or as an investment,” insists Maalde. If you are considering your first investment in gold, go for paper gold. Buying physical gold entails high making charges, with concerns about its purity. On the other hand, gold ETFs offer investors the triple benefits of security, convenience and liquidity. Investors are also assured transparency in pricing and can liquidate their holdings quickly at the prevailing market prices. You would need a trading account and a demat account to invest in gold ETFs. If you do not want the hassles of opening a demat account, you can consider gold funds, which are essentially funds of funds that invest in gold ETFs. This avenue offers the convenience of investing through the SIP route. However, keep in mind that you will pay the fund management fee to the gold fund and bear the expense ratio charged by the gold ETFs in its portfolio.
Having your own house provides a sense of security and an elevated social status. However, home buyers have to tackle a long list of issues. “Real estate as an investment can be very tricky if you do not know what you are doing,” says Suresh Sadagopan, founder, Ladder 7 Financial Services.
Why to invest
The low volatility in real estate prices lends stability to the investment. The prices rise gradually over time, compared with other asset classes, which may see wide fluctuations. It also provides a steady stream of income through rentals, even during a lull in the economy. Even if you do not intend to live in the house, you can partly finance your mortgage payments and other expenses through the rental income. Besides, it provides several tax benefits by allowing you to claim tax deduction on repayment of principal and interest on the housing loan, as well as repairs and maintenance. Most importantly, it provides the much-needed diversification to your portfolio. But keep in mind that there are different considerations when you buy real estate for investment and for self use.
Where to begin
Investing in real estate isn’t a cakewalk. Finding a good property with decent amenities in a good neighbourhood, which is close to your place of work, school and markets is a huge challenge. However, a little homework can help you zero in on a good deal.
You first need to work out a budget to finance the down payment for the house and subsequent EMI payments. Remember that you will have to meet the EMI obligation month after month. Also, factor in the expenses you are likely to incur after the purchase. These expenses are anything but ancillary. Painting, furnishing and maintenance can add up to a huge sum. Shopping for a home loan is another aspect requiring homework for first-time home buyers. Lenders will have marginal differences in interest rate, processing fees, margin money, prepayment options, etc. Go through the fine print carefully before signing on the dotted line. “First-time buyers should opt for a ready-for-possession property. There are too many hassles involved in one under construction,” says Sadagopan.
Top rules for stocks
- Invest only what you can afford to lose.
- Avoid investing large amounts at one go. Buy small quantities at regular intervals and try to get a feel of the market.
- Avoid trying to time your entry.
- Even professional investors find it difficult to catch a stock at its lowest price. Buy a stock in which you have strong conviction.
- Ignore tips and hot trends.
- Often, first investments are driven by friendly tips or prevailing hot trends. Traders love beginners as they chase the hot trends and drive prices higher. However, the traders bail out, leaving beginners in the lurch.
- Have realistic expectations of returns.
- Stocks can create enormous wealth, but don’t expect to hit the jackpot early on. You might not earn good returns initially and may, in fact, suffer losses.
- Don’t succumb to emotions.
- Stocks are inherently volatile. Even a good stock can fall if the market turns bearish. Don’t let fear and greed drive your investment decisions.
Top rules for debt
- Consider the reinvestment risk.
- Be clear how you will deploy the money when the instrument matures and you get the money back along with the interest or capital gain.
- Check the tax efficiency of investment.
- The interest from FDs and NCDs is taxed at the rate applicable to your income slab. The income from debt funds is treated as capital gain if the investment is for over a year.
- Match investments with cash-flow needs.
- Match investments with cash-flow requirements. If you need money in three years, invest in an FD or FMP. If you can wait, go for instruments with longer terms.
Top rules for gold
- Invest purely for diversification.
- Invest in gold for diversification and stability of your portfolio. Don’t be misled into believing that gold prices will only rise over time.
- Limit your exposure to 10-15 %.
- Do not try to get rich with gold. Contrary to belief, investing in gold carries a high degree of risk. Up to 15% of the portfolio is enough to gain a meaningful exposure to the asset.
Top rules for real estate
- Move fast.
- Think before finalising the deal, but once you zero in on an option, move quickly. Good properties get snapped up fast and waiting may result in diasappointment.
- Work out your budget.
- Secure your finances before the deal. Avoid taking on an EMI obligation that takes up more than 40% of your monthly income.
- Take professional help.
- Don’t get carried away by tall claims and leave nothing to chance. Whether it is inspecting the property or arranging proper documentation, take the help of professionals.
Source : http://goo.gl/eS7m7G
Vicky Mehta | Aug 6, 2013, 05.37AM IST | Times of India
I was recently watching a television show wherein an investment expert was taking questions from callers who dialed into the show. The expert was making a rather strong case for asset allocation and exhorting callers to invest in diverse assets classes. His constant rhetoric was, “Diversify your portfolio by investing in various asset classes such as equity, fixed income, gold and mutual funds.” That line got me thinking. Here was an investment expert who believed that mutual funds are an asset class by themselves, much like equity or gold.
In reality, mutual funds are investment avenues that can help you invest in a variety of asset classes, rather than it itself being a distinct asset class. For instance, if you wish to invest in equity, then you can select a large-cap, a small cap or a mid-cap fund. Likewise, a bond fund or a government bond fund can help you take exposure to the fixed income asset class. Hence, it is important that mutual funds be seen as a “means to an end” rather than an “end” in itself.
Mutual funds are multifaceted avenues given the choices they offer. To better understand this, let’s take the case of an investor in his 20’s, and whose investment objective is long-term wealth-creation. His portfolio can be constructed as follows: 40% in large-cap mutual funds forming the core of the portfolio, 25% in small/mid-cap funds, 5% in sector funds to provide an impetus to the portfolio, 15% in short-term bond and gilt funds for fixed income exposure, 5% in money market funds to keep the portfolio liquid and to allocate a portion to gold, 10% in gold funds. This example demonstrates how one can build a robust and diversified portfolio that has exposure to multiple asset classes despite being invested only in mutual funds.
It is noteworthy that some mutual funds are inherently tools for asset allocation. For instance, allocation funds such as balanced funds and monthly income plans simultaneously invest in equity and fixed income instruments in different proportions. Fund companies have smartly tapped into the Indian investor’s long-standing fascination for gold by introducing funds that can simultaneously invest in equity, fixed income and gold (via the ETF route). The portfolio manager decides the allocation to be made to each asset class within the broader limits mentioned in the scheme information document. In effect, such funds are a one-stop-shop for asset allocation.
Finally, let’s not overlook the significance of portfolio managers who are responsible for running funds. Managers are seasoned investment professionals who understand the nitty-gritty of the asset class they operate in, and are better equipped to deliver returns compared to retail investors investing on their own.
So what should you as an investor do? For you, the key lies in determining the right asset allocation mix — that is which asset classes you should be invested in and in what ratio, and then selecting the right funds. It would help to engage the services of an investment advisor or a financial planner. Clearly mutual funds can make for excellent asset allocation tools and you would do well to exhaustively use them while constructing your portfolio.
(The writer is senior research analyst, Asia-Pacific research team)
Source : http://goo.gl/4Gibfk
M Allirajan, TNN | Jul 10, 2013, 06.57AM IST | Times of India
COIMBATORE: Equity mutual funds (MFs) that invest in stocks of companies engaged in the commodities business have plunged ending up in the bottom of the performance charts so far this year. The fall has been quite steep in funds, which have an exposure to stocks of gold mining companies.
With prices of key industrial commodities and precious metals declining globally following the drop in demand, funds focusing on the segment have taken a hit. Funds that invest exclusively in gold mining companies have been the worst performers among the 460-odd equity-oriented MFs.
Equity funds that invest in gold mining companies have lost 39% to 43% so far this year with their net asset values (NAVs) quoting close to their yearly lows. In contrast , gold exchange traded funds, which closely track the prices of the yellow metal , have declined by only about 15% this year.
Stocks of gold mining companies usually fall and rise at a faster pace than the yellow metal. Incidentally, NAVs of most gold funds have slipped below the psychological Rs10 mark, the rate at which new fund offers open for subscription.
Interestingly, funds that focus on companies engaged in the agricultural commodities business have registered gains and are among the top-20 performers in the equity MF space in 2013.
“Commodities are cyclical in nature. They have been going through a trough as global growth is falling,” said Ramanathan K, CIO, ING MF. “There has been a correction in global commodity prices as China is calibrating its economy and has slowed its fixed asset investments ,” said Gopal Agrawal, CIO, Mirae Asset Global Investments India. The strengthening of the dollar index has also adversely impacted commodity prices, he said.
Funds, which focus on commodities such as base metals, too have fallen declining 9.7% to 14.9% so far in 2013. While the benchmark Sensex and Nifty posted less than 1% decline, diversified equity MFs dropped 7.7% during the period.
Equity MFs that invest in stocks of commodities are typically a lot more volatile than other asset classes. “This is a volatile asset class. Investors should have an appetite for volatility,” Agrawal said. But with prices of several commodities ruling close to their cost of production, the category presents a good investment opportunity, industry officials said. Investments should however be made in a systematic manner, they said.
Source : http://goo.gl/SXSSL
PRIYANKA PANI | MUMBAI, JULY 1| Business Line
Just days after banks withdrew EMI (equated monthly instalment) schemes on credit card purchases for gold, online sales of the yellow metal fell 20 per cent, the first time since e-tailers started operations.
“In just four days, our sales have dropped 20 per cent. It was first HDFC, now ICICI, HSBC and Standard Chartered Bank have all stopped their EMI option. We have been getting calls from customers about failures in payment processing,” said Gaurav Khuswaha, founder of Bangalore-based Bluestone.com.
He said the RBI guidelines were for the purchase of gold coins and bars and not for jewellery.
“The move will impact our jewellery sales, though we don’t sell gold coins. We are planning to take up this matter with the banks directly and also with the Gems and Jewellery Federation of India,” he added.
A gold rush of sorts is being witnessed not just in the brick-n-mortar jewellery stores, but also with online players, including Snapdeal, eBay and Indiatimes, ever since gold prices plummeted in the last two months.
Customers who buy gold jewellery online have not been able to click on the credit card option to convert their jewellery-buy into an easy EMI. Acting on a recent RBI guideline, most banks have stopped the EMI options in a bid to discourage consumers from buying gold in any form. The regulator’s move was to curb demand for gold and its import, in an attempt to reduce the current account deficit (CAD).
While the move has impacted brick-n-mortar retailers, it is likely to pinch virtual jewellers more, as about 20-25 per cent of their sales are through the online route. Easy access to the Internet, high disposable income, easy payment options, range of designs and convenience of home delivery offered by e-stores had encouraged many consumers to buy online.
Kama Jewellery, a gold retailer, that runs an online portal Kama Schachter, said with one piece of jewellery being sold every four minutes in India, online purchase of jewellery was a trend that had caught the fancy of the younger crowd. Most of these consumers look for easy EMI options that come with zero per cent interest.
“Recent announcement by financial institutions prohibiting the use of credit cards for easy EMI on jewellery purchases has hit online jewellery sales in big way. EMI accounts for about 40 per cent of our sales,” said Sandeep Jain, V-P (Sales), Kama Jewellery.
The e-tailer, as an immediate measure, is pumping up the entry point stocks to make sure that there is something for everyone, said Jain. Several banks, when contacted, declined to comment.
Source : http://goo.gl/B9e9Z
These investments can’t be pledged to secure loans. However, this doesn’t make them unattractive
Vivina Vishwanathan |First Published: Wed, May 29 2013. 07 37 PM IST| Live Mint|
On Monday, the Reserve Bank of India (RBI) issued guidelines barring banks from giving loans against units of gold exchange-traded funds (ETFs) and gold mutual funds (MFs).
In a separate circular, RBI stated that non-banking finance companies (NBFCs) are banned from giving loans against bullion or primary gold and gold coins. RBI clarified that NBFCs should not give loans for purchase of gold in any form, including primary gold, gold bullion, gold jewelry, gold coins, units of gold ETFs and units of gold MFs.
For banks, RBI also restricted loans against gold coins per customer to gold coins weighing up to 50g. Banks and NBFCs can give loans against gold ornaments and jewelry.
The new guidelines
Gold ETFs and gold MFs are backed by bullion or primary gold. RBI has been against the practice of giving loans against gold bullion. Now, RBI has clarified that considering the underlying product is bullion or primary gold, the restriction on grant of loan against “gold bullion” will be applicable on gold ETFs and units of gold MFs as well. Says R.K. Bansal, executive director, IDBI Bank Ltd, “RBI was always against the practice of giving loan against bullion or primary gold. They are saying the same thing again.”
In case of gold coins, RBI states that banks are allowed to give loans only against specially minted gold coins sold by banks as they may not be in the nature of “bullion” or “primary gold”. However, RBI states that there is a risk that some of these coins would be weighing much more, which can go against RBI’s guidelines of restriction on grant of advance against gold bullion. So, if a bank is giving loan against gold coins, banks should ensure that the weight of the coins does not exceed 50g.
What is the practice?
Two of the listed gold loan firms have denied giving loans against gold ETFs and gold MFs to its customers. Says George Alexander Muthoot, managing director, Muthoot Finance Ltd and president, Association of Gold Loan Companies (India), “We don’t have a single customer who has taken loan against gold ETFs or gold MFs.”
Adds I. Unnikrishnan, executive director and deputy chief executive, Manappuram Finance Ltd, “Loan against gold ETFs or gold MFs was never a popular product and this ban is not going to have any impact on the business of financial institutions.”
What should you do
You can no more pledge gold ETFs and gold MFs in case you need a loan. However, this doesn’t mean that you should stay away from these products. Says Suresh Sadagoppan, a Mumbai-based financial planner, “The best way to buy gold for investment purpose is in paper form such as gold ETF and gold MF.” As RBI has put a cap of 50g on gold coins, again your option of pledging gold comes down further.
By Amit Shanbaug, ET Bureau | 27 May, 2013, 08.00AM IST |Economic Times|
Last week, Kochi-based Anjana Badoor discovered that the option to prepay a loan does not rest with the borrower after all. “I had taken a loan of Rs 50,000 last year from a public-sector bank against jewellery roughly worth Rs 75,000. Though the loan tenure was two years, I was asked to prepay the entire outstanding amount immediately,” says the 53-year-old.
Given that she was servicing her EMIs on time and in full, Badoor can’t understand what prompted her bank to force her to prepay the loan. The reason is plummeting gold prices, which fell from Rs 32,500 per 10 gm in September 2012 to below Rs 27,000 in May 2013, a 17% drop. And yes, banks and NBFCs are within their rights to demand part prepayment or complete repayment of a loan.
Says Harsh Roongta, chief executive officer of Apnapaisa.com: “The terms and conditions for loans against gold are similar to other products, such as shares or other types of collateral. So if there is a drop in the value of the collateral, financial institutions can insist on accelerated payments to safeguard their money.”
Till mid-2012, banks and NBFCs were allowed a loan-to-value (LTV) ratio of 80-95%. In other words, you could walk home with a loan that was 95% of the value of the collateral you put up. As is evident, a high LTV ratio will be seen as higher risk. “Now that the price of gold has come down, the worth of jewellery pledged by gold loan borrowers is less than that at the time of giving the loan,” explains Rajiv Raj, co-founder and director at CreditVidya.com.
He also adds, “Banks, therefore, run the risk of some borrowers defaulting on their loans.” The default rates in leading gold loan companies are reportedly in the range of 7-9% of the total loans. As a preventive measure against collateral threat, they are likely to resort to prepayment notices.
The RBI move to cap the LTV limit for NBFCs to 60% in March 2012 is a safeguard mechanism, but it does nothing to protect loans that were disbursed earlier. These are the borrowers who need to be wary at the current juncture. According to Raj, if the LTV goes beyond the prescribed limit, lenders prefer to change the terms of the original deal. This isn’t really a bolt from the blue since most lenders clearly mention in the terms and conditions that customers need to make good on the margin if the collateral value of the asset comes down.
The good news is that banks rarely resort to twisting the customers’ arms as a start. Badoor happens to be unlucky to have been stuck with a panicked branch manager, who preferred to limit the risk exposure by calling in the entire outstanding amount. Ram Sangapure, general manager, Central Bank of India, explains that though banks have the right to recover the entire loan amount at any point, most refrain from doing so. “The possibility of a borrower defaulting would be higher if the banks force them to repay the entire amount at once. So most banks avoid doing so,” he adds.
Moreover, banks are wary of selling the collateral as it may not always fetch the outstanding amount. Besides the fact that organising the sale of collateral involves costs, gold jewellery also runs the risk of depreciating by 15-20% on making charges, if auctioned.
According to Sangapure, banks typically offer two options to a borrower in case there is a sharp drop in the value of the collateral. “The first one is part-payment of the outstanding principal amount, wherein the LTV ratio becomes appropriate again,” he says. Here, the customer may have to pay just the minimum outstanding principal to get the ratio right. Though prepayment penalties on gold loans are rare, experts confirm that the banks/NBFCs charging this fee waive it if they exercise their right to an early foreclosure.
Alternatively, banks may ask for a rise in the pledged collateral. “Most borrowers would prefer to take the second route if they are sure of repaying their dues and recovering their jewellery,” adds Sangapure.
If you are stranded
Badoor is thankful that she had taken a relatively small loan and managed to repay it by borrowing from friends. However, this option may not be open to everybody. If you are slapped with a notice for an immediate prepayment or increased collateral, but are unable to opt for either, don’t panic.
Explain the situation to the bank and it is likely to work out a mutually agreeable solution. For instance, you could ask your branch manager to be allowed to pay the difference in the LTV ratio. If you are expecting some cash flow in the near future, leverage on this windfall. As long as you have a good credit record, your bank is likely to extend you grace period. Unfortunately, the chances of being able to negotiate on your EMI are slim. “The lenders will not agree to alternatives such as a higher interest rate for the same collateral since they need to report these instances to the regulator,” says Raj.
The one thing you need to be careful about is not defaulting on the loan. For, you will not only lose your pledged jewellery, but will also ruin your credit score, making it difficult to land any other loan in the future.
Nidhi Nath Srinivas, ET Bureau Apr 21, 2013, 06.53AM IST
Think you know all about Gold? Think again. Here are 10 facts that will give you a better understanding of the gilded stash in your locker. And, in case you didn’t cash in on the tumble in prices earlier this week, fret not: the gold story isn’t over.
1) We still don’t own enough gold
If all the gold ever mined was made into bricks it would end up in a block 20 metres cubed or around 60 ft wide, high and deep. This means if all the gold in the world was gathered in one space it would fill just one large house. At the price of $1,500/troy ounce, reached on April 12, 2013, one tonne of gold is worth approximately $48 million. The total value of all gold ever mined would exceed $8 trillion at that price. Though it sounds like a lot, there is actually little to go around. India owns 18,000 tonnes of above-ground gold. Distributed equally, each Indian would barely get half an ounce of gold, a figure significantly below consumption in Western markets.
2) Gold reserves will last another 12 years, but…
The volume of gold available for mining is a product of both geology and economics. Measuring the volume of gold ore available for mining will depend on what quality of gold ore grade is classed at a specific time as a viable ‘reserve’ ore that can be economically mined at the current or expected gold price. The US Geological Society estimates global gold reserves at around 51,000 tonnes. On this basis, if mine supply were the only source to satisfy current levels of demand, these reserves would last 12 years or so. Known reserves have remained fairly constant over recent years since production from new sources has replaced reserves that have been exploited.
3) We are close to gold’s minimum support price
The global average production cost of gold is about $1,200 an ounce. It was quite stable in the 1990s but has risen by almost 70% over the past five years. So, this month’s drop to $1,360 an ounce brings gold closer to the global average production cost. It couldn’t have been worse timed for gold companies such as Barrick Gold Corp and Newmont Mining Corp, the world’s two largest producers. Despite 12 consecutive years of rising gold prices, shareholders have lost faith in the gold-mining industry, which has seen soaring production costs and made money-losing acquisitions. If prices stay low, the smaller players that carry out exploration and development will get squeezed out, eventually affecting gold supply.
4) Now gold too is made in China
Just 20 years ago, that country wasn’t even on the gold map. Yet China set out to build up its gold mining capacity and succeeded to the extent that it’s now the world’s biggest gold producer. China produced 400 tonnes in 2012 , and expects to touch 450 tonnes by 2015. None of the metal ever leaves the country. According to the World Gold Council, China is the world’s sixth-largest holder of monetary gold. The collapse in bullion prices will encourage China’s top gold producers, Zijin Mining and state owned Shandong Gold Group, to prowl around for cash strapped small- and mid-sized miners overseas.
5) Americans are going back to gold as money
More than a dozen states in the US, led by Utah, Arizona, Kansas, Texas and South Carolina, are preparing to adopt gold and silver coins as money, like the dollar. Lawmakers in these states distrust the Federal Reserve and fear that the greenback may become worthless. The US Constitution bars states from coining money and also forbids them from making anything except gold and silver coins. Advocates say that opens the door for the states to allow bullion as legal tender. How will it work, given gold’s fluctuating prices? The process is being finalised. Gold is mined both in Arizona and Utah, while Nevada is the largest US producer.
6) There is gold in your smartphone
After silver, gold is the best conductor of electricity. It also doesn’t corrode or tarnish whenever it comes in contact with water. This makes gold the perfect, albeit expensive choice, for the consumer electronics industry. There are 10 troy ounces (1 troy ounce =31.1034768 gms) of gold per tonne of smart phones. Some 10,000 phones weigh one tonne. With gold selling for about $1,500 per ounce, that would yield $15,000. Two hundred laptops would yield five troy ounces of gold. Recyclers typically burn circuit boards and use cyanide on the ash to separate the gold. British luxury designer Stuart Hughes has created a luxury iPhone 5 for $15.3 million, which is coated in solid gold and features both black and white diamonds.
7) Here lies the gold, just as Die Hard showed us
New York Fed’s vaults hold about 23% of the world’s official gold reserves. The secretive vault situated 80 feet below ground level round the block from Wall Street stores gold belonging to several foreign governments. Vaults belonging to the Bank of England at Threadneedle Street in London contain the second-largest stash of gold reserves. The Reserve Bank of India owns 557.75 tonnes of gold. Of this, 265 tonnes is lying in the vaults of the Bank of England and the Bank for International Settlements. Countries across the world have been concerned about their gold deposits stored abroad. Hugo Chavez brought back Venezuela’s gold reserves from the Bank of England last year.
8) Make sure your gold is not tainted
There exists a shadowy chain of smuggled gold that stretches from the conflict zones of the Democratic Republic of the Congo to the markets of Dubai and jewellery shops in Mumbai and Delhi. More than $600 million worth of gold is estimated to leave Congo every year, and armed groups are funding their operations through control of a significant percentage of that amount. The WGC (World Gold Council) and other industry bodies are now enforcing standards for greater traceability in supply chains. Under the Dodd-Frank financial regulation act, US-listed companies that source gold, tungsten, tantalum and tin from Congo or its neighbours must assure the US stock exchange regulator that their business is not helping fund conflict.
9) Silver still packs a punch
The price of silver has risen over 100% during the past four years, and it has risen more than 500% over the past 10. Silver has been in a long-term bull market that has only recently paused to consolidate its tremendous gains after peaking at $49/ounce level in April 2011. The silver market is seeing a new wave of buying emerge once again as prices soften. Regardless of price, metallic silver has strategic importance in industrial and medicinal applications for which it cannot be readily replaced.
10) Yes, gold story is still alive
Physical demand has picked up momentum. India was the first to respond, followed by Dubai, Japan, Europe and China. The US Mint has sold 147, 000 ounces of gold coins in April so far. This is already nearly as much as in the whole of January, when coin sales peaked since the summer of 2010. Since the price slide, nearly 100,000 ounces of gold coins have been sold within just three days — the last time such a high volume was sold was in 2008 following the collapse of US investment bank Lehman Brothers. Central banks bought 534.6 tonnes in 2012, the highest level since 1964. Private investor demand for gold bars and coins in 2012 was 20% above its 5-year average.
August 15, 1971: Gold standard abandoned
Struggling to pay for the cost of Vietnam war, President Richard Nixon abandons the so-called “gold standard”. The dollar had been fixed at a rate of $35 to an ounce. That peg is dropped and gold starts to rise.
A look at the rise in gold prices since 1979:
Jan 31, 1979 – Rs 595/10gm
Soviet invasion of Afghanistan in January 1980 – International political tension soars after the Soviet invasion of Afghanistan. Gold hits a record of $850 an ounce on January 21.
Confidence returns in 1981-82: Gold prices begin to fall as investors regain some confidence in the US economy and the dollar. Inflation also begins to slow.
Jun 30, 1982 – Rs 954/10gm
July 31, 1985 – Rs 1,221/10gm
July 1986 – South Africa: Western nations impose sanctions on South Africa in protest over its apartheid laws. Gold prices jump 23% between July and October as traders fear that South Africa might cut gold exports in retaliation.
1987 – Inflation returns: Gold price hits $500 per ounce for the first time in five years as inflation accelerates again in the US.
Jan 31, 1989 – Rs 1,722/10gm
July 30, 1993 – Rs 3,955/10gm
Banks start selling gold in July 1996-99 – Gold prices fall on news that the International Monetary Fund had been considering selling 5 million ounces to help pay for debt relief in the developing world.
Jun 30, 1997 – Rs 3,921/10gm
In July 1999 gold hits a 20-year low of $252.8 an ounce.
Central banks start to follow the IMF’s lead. The Swiss National Bank announces a plan to sell 1,400 tonnes of gold, Australia also sells a large part of its reserves.
Oct 29, 1999 – Rs 4,340/10gm
The British government sells more than half of its gold â€” almost 400 tonnes â€” between 1999 and 2002 raising $3.5 bn.
Feb 28, 2003 – Rs 5,509/10gm
May 31, 2005 – Rs 5,896/10gm
August 2005 – Hurricane Katrina: Hurricane Katrina boosts oil prices and raises fears that a period of quicker inflation was returning. By December 2005 gold is at $536.50 an ounce, the highest level in 24 years. The weak dollar also helps boost gold throughout 2006.
May 31, 2006 – Rs 9,844/10gm
Jul 29, 2007 – Rs 8,595/10gm
Credit crisis in August 2007 – Investors buy gold as a safe haven amid the growing financial crisis. The falling dollar and rising global inflation also boost the metal.
2008: The world’s central banks sell gold.
Mar 31, 2008 – Rs 12,559/10gm
Oct 31, 2008 – Rs 12,597/10gm
Dec 31, 2010 – Rs 20,184/10gm
Jul 29, 2011 – Rs 22,457/10gm
Nov 30, 2011 – Rs 28,378/10gm
2012: Central banks become aggressive buyers, purchasing a record 534 tonnes to replace the paper currency in their national reserves.
Sep 28, 2012 – Rs 30,566/10gm
2013: Short selling triggers gold market crash
Apr 20, 2013 – Rs 26,475/10gm