Skip to main content

Monetising your Gold

 



Investing in monetising schemes will not only benefit individuals, but also the economy

 

Kerala Chief Minister Oommen Chandy has opposed the Central directive to deposit gold belonging to the state's temples in banks. This was in the backdrop of the government's proposal to monetise the country's large reserves of gold. As per the World Gold Council, temples in India have about 2,000 tonne gold, half of that held by Fort Knox. India, one of the world's largest consumers of gold, imports 800-1,000 tonne each year. Our huge appetite for gold is one of the reasons the rupee tumbled and worsened our current account deficit in 2013.

Gold has a strong correlation with inflation and interest rates. In times of high inflation or a low real interest rate environment, the purchasing power of an economy decreases. People buy fewer goods and services for each rupee earned. There is a greater need to invest in gold as a hedge against inflation since savings are rendered unattractive.

Gold is perceived as an unproductive asset that drives household savings away from the markets. Of India's estimated 20,000 tonne gold, most is in the form of jewellery, which is rarely traded or brought in circulation. To monetise it, Finance Minister Arun Jaitley proposed a gold monetisation scheme. It aims to unlock the value of gold reserves and create new financial products with gold as underlying asset. The scheme will replace the current gold deposit and gold loan schemes run by some banks, which provide loans against gold. Depositors will earn interest on their gold accounts and jewellers will also be able to obtain loans on their gold accounts.

The government has also proposed redeemable sovereign gold bonds (SGB), which will carry a fixed interest rate. These will be redeemable in cash on the face value of gold. Similar to gold exchange traded funds (ETFs), an amount equivalent to the value of gold would be paid to the investor at the time of redemption. Instead of investing in physical gold that carries the hassles of safety and purity, investing in ETFs or SGBs is smarter. It carries no making charges, no threat of theft and is easy to sell or buy.

A large number of gold buyers belong to rural areas. In the absence of adequate investment opportunities, the money often gets channelised to gold and real estate. If attractive financial instruments can be created to serve this section, demand for gold will eventually drop. Operating the monetisation scheme through banks and Jan Dhan Yojana will help its benefits trickle to all sections of society and discourage borrowings from moneylenders. Banks will be able to productively use the gold held by households. This will lead to lesser imports and import duties, and eventually bring down the price of gold.

The benefits of gold monetisation will be felt only if the economy is able to keep inflation under check. Positive real interest rates and efficient capital markets will go a long way in ensuring the success of the scheme. Such schemes are effective provided real returns from these are high. If the investment climate is such that the return on investment is low, the schemes are counterproductive as they simply serve to raise inflation. It is important to keep in mind that the schemes are welcome but not a panacea for the larger structural issues that confront our economy.

Indians have a tendency to save. It is important to nurture this habit and encourage them to invest their money in these new schemes so that both the individual and the economy are in a win-win situation. Gold at home often has no value other than being an heirloom, which is passed on from generation to generation. The same holds true for the gold held in temples. Monetising gold will increase the purchasing power of people, provide them with liquidity and convert gold savings to economic investments.

We have had all this land that has all this oil, that's got all this gold, probably for eternity, and it can only be developed through capital. And the only thing that can attract capital is the ability to go to the markets and demonstrate that it can be monetised

Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015

1.ICICI Prudential Tax Plan

2.Reliance Tax Saver (ELSS) Fund

3.HDFC TaxSaver

4.DSP BlackRock Tax Saver Fund

5.Religare Tax Plan

6.Franklin India TaxShield

7.Canara Robeco Equity Tax Saver

8.IDFC Tax Advantage (ELSS) Fund

9.Axis Tax Saver Fund

10.BNP Paribas Long Term Equity Fund

You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds

Invest in Tax Saver Mutual Funds Online -

Invest Online

Download Application Forms

For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

---------------------------------------------

Leave your comment with mail ID and we will answer them

OR

You can write to us at

PrajnaCapital [at] Gmail [dot] Com

OR

Leave a missed Call on 94 8300 8300

---------------------------------------------

Invest Mutual Funds Online

Invest Any Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Download Mutual Any Fund Application Forms

Popular posts from this blog

All about "Derivatives"

What are derivatives? Derivatives are financial instruments, which as the name suggests, derive their value from another asset — called the underlying. What are the typical underlying assets? Any asset, whose price is dynamic, probably has a derivative contract today. The most popular ones being stocks, indices, precious metals, commodities, agro products, currencies, etc. Why were they invented? In an increasingly dynamic world, prices of virtually all assets keep changing, thereby exposing participants to price risks. Hence, derivatives were invented to negate these price fluctuations. For example, a wheat farmer expects to sell his crop at the current price of Rs 10/kg and make profits of Rs 2/kg. But, by the time his crop is ready, the price of wheat may have gone down to Rs 5/kg, making him sell his crop at a loss of Rs 3/kg. In order to avoid this, he may enter into a forward contract, agreeing to sell wheat at Rs 10/ kg, right at the outset. So, even if the price of wheat falls ...
Read more

Zero Coupon Bonds or discount bond or deep discount bond

A ZERO-COUPON bond (also called a discount bond or deep discount bond ) is a bond bought at a price lower than its face value with the face value repaid at the time of maturity.   There is no coupon or interim payments, hence the term zero-coupon bond. Investors earn return from the compounded interest all paid at maturity plus the difference between the discounted price of the bond and its par (or redemption) value. In contrast, an investor who has a regular bond receives income from coupon payments, which are usually made semi-annually. The investor also receives the principal or face value of the investment when the bond matures. Zero-coupon bonds may be long or short-term investments.   Long term zero coupon maturity dates typically start at 10 years. The bonds can be held until maturity or sold on secondary bond markets.
Read more

Mutual Fund MIPs can give better returns than Post Office MIS

Post Office MIS vs  Mutual Fund MIPs   Post office Monthly Income Scheme has for long been a favourite with investors who want regular monthly income from their investments. They offer risk free 8.5% returns and are especially preferred by conservative investors, like retirees who need regular monthly income from their investments. However, top performing mutual fund monthly income plans (MIPs) have beaten Post Office Monthly Income Scheme (MIS), in terms of annualized returns over the last 5 years, by investing a small part of the corpus in equities which can give higher returns than fixed income investments. The value proposition of the mutual fund aggressive MIPs is that, the interest from debt investment is supplemented by an additional boost to equity returns. Please see the chart below for five year annualized returns from Post office MIS and top performing mutual fund MIPs, monthly d...
Read more

Benefits Of Repo Rate & CRR Rate Cut On Consumers

  How Reduction In Repo Rate & CRR Affects Customers Finally  RBI announced slashing of repo rate by 25 basis points (bps ) and cash reserve ratio (CRR) by 25 bps which industry experts believe will fuel the economic growth to some extent. Although experts were expecting higher rate cut this year. This lowering of the rate cuts has taken place for the first time in nine months. Now let's see how reducing the repo rate (defined in economic term as the rate at which RBI lends money to the banks) relates to the following individuals and sectors: Banking:   Lowering of repo rate directly reduces borrowing costs of a bank. Banks in turn reduces interest rates on different types of loans such as home, auto, business etc. Similarly trimming down of CRR allows banks to unlock money for lending to the customers i.e. with 0.25 rate cut banks are estimated to lend more than INR. 17 Crores. Consumers:   Lower repo rate does not necessarily benefit existing loan borrowers but new loan se...
Read more

NRI Corner: The process of remittances abroad

The process of remittances abroad, and back, is cumbersome. Here’s how you can wade through without hassles Approach The Right Place Outward remittances or the process of sending money abroad is governed by many regulations. In India, outward remittances are made mainly through banks. At the outset, you need to remember that you just cannot trust any individual or a financial firm with the responsibility of sending your money. Experts recommend that you should always try to choose a bank with an international footprint, which will make your job easier. Choose Mode Of Transfer The next step is to choose the mode of transfer. One option is to get a Foreign Currency Demand Draft ( FCDD ). This draft will be denominated in foreign currency and should be drawn in favour of the recipient/ beneficiary. The beneficiary does not necessarily need to have an account with the same bank. The other option is to send money via wire transfer. Do not be puzzled if the bank official uses the word SWIFT ...
Read more
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