Skip to main content

Gold - Glitter to investments

Is Gold A Golden Investment?

There is considerable action in the other non-financial fund category, namely, gold. There are two kinds of gold-related funds in India. One is the so-called gold ETFs, which act as proxies for holding gold in physical form. Fund companies that run gold ETFs invest all of the investors' money in gold. Thus, the money invested in such funds makes profits or losses exactly in line with the price of gold, after charging around 1 per cent per annum as expenses.

In the year or so since the first gold ETF was launched these funds' number has grown to five with few more in the pipeline. For a niche fund type, they've proven reasonably popular and hold assets of Rs 550 crore. However, when one compares these funds to the amount of gold that is traded in the commodity markets, this is a pittance. However, it's the other kind of gold fund that is having a more interesting time. These are funds that invest in the stocks of gold mining, refining and marketing companies abroad.

Currently, there's only one fund of this kind-DSP Merrill Lynch's World Gold Fund but another one from AIG is on offer right now and there's at least one from Tata Mutual Fund that is in the regulatory approval stage.

While gold prices have always had their ups and downs over the years and housewives in many Asian cultures have always liked to have their personal hoard of gold as hedge against bad times, it has been a long time since anyone has considered it as an alternatives to investments like stocks. This appears to have changed. Gold has had an amazing run over the last seven years, earning returns of about 300 per cent. Still, this can't disguise the fact that over the long term, gold hasn't been a great investment.

Even at the current prices, gold on international prices has gained at an average 4 per cent per year over the last hundred years. Adjusted for inflation, this is a mere 0.6 per cent a year. Does investing in gold or gold mining funds make sense now? According to those who are pitching for gold, we are in an unusual time when a combination of factors will probably make gold appreciate. Demand may stay and the supply will not really expand. After all, this is one of the scarcest materials on Earth. The total amount of gold ever mined in the world can fit into a box that is 64 feet by 64 feet by 64 feet.

What does all this mean? Looking beyond the merits of gold as an investment, the actual issue is the chasing of past performance that we all tend to do. Gold may do well or it may do badly. But the way to make money in gold in was to have realized back in 2001 that gold was at a historic low and then to have started buying it gradually.

To suddenly become a gold investor when the price has already run up more sharply than it has for a generation is folly indeed. Gold may have given returns of 40 per cent over two years, but the last time it did such a thing was perhaps in the mid to late 1970s. Do you really want to take a call on whether such a thing is sustainable? Whether it's gold or it's stocks or funds, what has already happened is generally not a great guide to what's going to happen. Gold won't be an exception to this rule. Gold as a small holding-perhaps five per cent of one's financial assets is fine, but it can't be anyone's main investment.

The sensex dipped 20% in 3 months but gold ETFs have given over 25% returns. It’s time to look at gold for safe investments


WITH THE stock markets on a downhill trek, a wave of panic has gripped the retail investors. In these uncertain times, you may have also found yourself struggling, and sometimes worried, on how to get the right portfolio mix and avoid the bear’s claws. The same stands true for many, who ran out of his wits after his year-long investments eroded in a matter of few seconds. If analysts are to be believed, in such turbulent phases, you can always look up to gold as an investment option not only as insurance against the choppy markets but for better returns as well.

THE GOLDEN SCENARIO

With an expected slower US growth momentum, Fed rate easing, a weakening dollar, rising oil prices and heightened geopolitical concerns, gold prices appear to be firmly supported in the months ahead. Strong investor demand coupled with strong jewellery demand from Asia and the Middle East is also likely to push the prices. In the present context, gold is expected to provide better capital appreciation, provided it is bought at a right price. It is also a good hedge against inflation

Strong fundamentals put aside, gold has also given a return of 18% in the first two months of 2008. Today, it is the most recession-proof asset and is actually playing the role of insurance in the investor’s portfolio.

THE ETF ROUTE

Analysts feel that in the present market conditions gold is expected to provide better capital appreciation. While the sensex has fallen more than 20% in the last three months, gold Exchange Traded Funds (ETFs) have given returns of over 25%. “If you’re looking for gold as an investment then it is better to invest through ETFs instead of holding gold physically.

It has a triple advantage:

1) Gold held via ETF would be treated as a long-term asset in one year whereas you’ll have to hold the physical gold for three years to classify it as long-term.
2) There is no wealth tax attached and if you hold it in demat form

3) There are no issues about its purity.

GOLD FUNDS

If you’re bullish about gold and other precious metals, it can be an interesting move to buy a mutual fund scheme which in turn invests in the shares of mining companies of gold, silver and platinum.
If you invest through an ETF, it is kept for three years and the amount of gold backing remains the same (it does not grow). However, in those three years, a gold mining company could have increased in the share price, could have given dividends and achieved higher valuation (share price) on account of corporate actions (like mergers, acquisitions).

Investing in a gold fund would benefit more as with the increase in gold prices, the profits of gold mining companies increase manifold on account of operating leverage. Launched in 2007 in India, DSP ML Gold Fund has given a return of over 60% in last six months.

GLITTER EFFECT

According to analysts, though gold is expected to provide very good returns this year, it would also come with higher volatility. So before you plan to invest in ETFs or gold funds, it is pertinent that you should get an outlook of dollar and crude price behavior, physical demand for gold in the global market and performance of equity markets. The entry time is very important while investing in gold. One should consider the seasonal pattern such as wedding seasons. Analysts caution that if you don’t understand the dynamics of the commodity markets, avoid buying through futures because when the price goes against your position (price falls after you have bought) then you have to give the difference (known as marked-to-market) immediately to the broker.

Today, all major investors have 3-15% of their portfolio in gold, and as of now it looks like an opportune time to bet on the precious metal. And exercising a bit of caution will only add glitter to your investments.

Popular posts from this blog

SBI Magnum Tax Gain Scheme 1993 Applcation Form

    https://sites.google.com/site/mutualfundapplications/tax-saving-mutual-funds-elss     Investment Details Basics Min Investment (Rs) 500 Subsequent Investment (Rs) 500 Min Withdrawal (Rs) -- Min Balance -- Pricing Method Forward Purchase Cut-off Time (hrs) 15 Redemption Cut-off Time (hrs) 15 Redemption Time (days) -- Lock-in 1095 days Cheque Writing -- Systematic Investment Plan SIP Yes Initial Investment (Rs) -- Additional Investment (Rs) 500 No of Cheques 12 Note Monthly investment of Rs 1000 for 6 months and quarterly investment of Rs 1500 for 4 quarters.

Impact of Demonetisation

The government's move to demonetise `500 and `1,000 currency notes will immediately impact reserve money and money supply in the system along with the balance sheet of the Reserve Bank of India, the sole authority in the country for accepting currency notes and coins as legal tender. ET explains the interplay of currency, reserve money and money supply. 1. What is currency in circulation? It is the total value of currency (coins and paper currency) that has ever been issued by the central bank minus the amount that has been withdrawn by it. Currency in circulation comprises currency notes and coins with the public and cash in hand with banks. It is a major liability component of a central bank's balance sheet. 2. What is reserve money? It is essentially the central bank's money . It is also called high-powered money , base money and central bank money . As per the definition, reserve money equals currency in circulation plus bankers' deposits

Birla Sun Life Tax Plan Online

Invest Birla Sun Life Tax Plan Online   An Open-ended Equity Linked Savings Scheme (ELSS) with the objective to achieve long-term growth of capital along with income tax relief for investment.   After a bad patch from 2008 to 2010, Birla Sun Life Tax Plan has made a big comeback in the last five years, with a particularly good run since 2014. The fund's rankings, which had slipped to two stars in 2011-12, recovered sharply to three-four stars in the last three years. The fund has delivered a particularly large outperformance over its benchmark and peers in the last couple of years. The fund's investment strategy focuses on a diversified and high-quality portfolio, with parameters such as capital ratios and balance-sheet strength used to judge quality. It uses a combination of top-down and bottom-up approaches to take sector/stock positions. The fund avoids highly leveraged plays. Staying more or less fully invested at all times, the fund parks roughly half of its portfoli

Should you Roll Over 1 year Fixed Maturity Plans?

The period between January and March typically sees an uptick in the launch of fixed maturity plans, or FMPs. Not this year. Instead, fund houses are busy rolling over or extending the tenure of their one- year FMPs launched last year to three years. Investors in one- year FMPs have a choice. Either redeem units or roll over to three years. If you exit now, your gains will be added to your income and taxed in line with your individual slab rate of 10, 20 or 30 per cent. If you stay invested for two more years, you pay 20 per cent tax with indexation benefit. Yields have softened in the past few months on expectations of a rate cut. If the central bank continues its soft monetary stance, yields are likely to fall further. In such a scenario, it makes sense for investors, particularly those in the 30 per cent tax bracket, to roll over their investments and lock in at a higher yield now. In a surprise move, the Reserve Bank of India cut repo rate by 25 basis

Reminder from Income Tax Department for Income Tax Return Filing

The income tax department has sent out emails to tax payers reminding them to   e-file income tax returns for income earned in FY 2015-16 (assessment year AY 2016-17). The due date for submission of tax returns for FY 2015-16 is 31 st   July 2016. The following email has been sent- Dear Taxpayer, By this time last year, you may have had already electronically filed your Income Tax Return. This is a gentle reminder for you to file your Income Tax Return for Assessment Year 2016-17. E-filing is simple, easy and convenient as you would have experienced in the last year. You are requested to login to  https:// incometaxindiaefiling.gov.in   and download the free return preparation software with a host of new features to help you in preparing the Income Tax return and submit your return. You can also prepare and submit ITR1 and ITR4S online. Please take some time to browse through all the value -added services offered on the E-filing website that will help you prepare your return accurat
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now