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Gold never Rusts: Invest in Gold ETF

The high and low pattern of gold will always be there but will never be the factor to sidetrack or sideline the gold for good, the gold may appear to be down but not out. The rainbow always has a golden lining on both the ends. Let us take one example that one day the world is free from all the ailments and the implications will be that all the pharmaceutical companies will have to be shut down as no one will ever fall sick, doctors, hospitals and the medical equipment manufacturing factories will come to a grinding halt, But this is only hypothetical and can never happen and same holds true in case of the gold.

The people may not always be attracted to the sheen of gold but on the other hand they are attracted to the gold merely due to the fear factor that just in case the going gets tough and when nothing works out positively, during the days when the tables are turned and the back is against the wall than in these tough times only and only gold is reliable. Some reasons are going against the gilt is that some of the major economies are experiencing down slides and due to this reason the investors are investing and reaping.

One does not require having knowledge of the rocket science to understand that there is no danger to the world economy but as usual the market by nature is very crabbed and grumpy, and it is because of the very checquerred nature of the investors in the share markets these countries like Russia, Brazil, Japan, China and some of the European countries as well registered bad financial health. Even if a small country like Greece fails to repay the debts caused high rated tremors on the Richter scale globally, something like what was the fall out globally after the crash of the Lehmann brother’s investment bank of US in 2008. Before the time the US cut the encouragement package and the start of the Greece crisis the gold had crossed $1, 800 per ounce i.e. Rs 35, 000/- per 10 grams now when the dust has fallen back in place the gold is $1, 100 per ounce and in the domestic markets it is Rs 25, 000/- per grams.

The Greece crisis is offshore for the time being and the morale of the bear has taken the stick, the old saying that the gold is history or the gold is money is sounding true once again, time and again. However there is one other opinion that the gold is non important metal except its ornamental use has hardly any other use but this theory of some school holds no good because gold has its own elite place in the financial markets since time immemorial just like the importance of horse in transportation and for communicating the telecommunication, so ultimately gold is natural money which has never failed to live up to the expectations and is an asset on any given time and this is a fact and that is why the gold has played a vital role in any central banks and the government’s various operations.

During the past six years  the Russia as well as the China have been the top most procurers of the gold, China has increased its holding by 60%  and so also the Russia has doubled its holdings, and in the last month when gold had dipped a bit Russia went for the kill and further increased its holding by 6.5%. Whenever the bubble of the economy bursts or the other factors which are going against Russia like the fall in the crude prices, and the competition in the arms race from the contemporary rivals US, even the France and Israel are emerging fast, so taking all these developments which may prove to be a bottle neck in the near future it is only the gold which will quench the thirst eventually. One must not forget that the governments and the central banks have a battalion of the economists to understand the economy, currency, gold as well as the markets and if they are giving so much weightage and importance to gold then there must be some concrete reason behind. After a brief hibernation period gold will be all set and raring to go.

So as an investor one can invest in the gold because the gold has a knack to beat the effects of both the inflation and the currency fluctuations as well and the gold has also time and again proved to be a economically secure asset during the time of recession. Whenever the times are difficult the gold has never failed to retain its value but on the contrary has always performed much better if compared to most of the other asset class. More over the gold has always been the insurance for any portfolio and has always managed to evade the value erosion. In short any portfolio if having gold is considered to be robust and less volatile if compared to those portfolios which are devoid of gold. The percentage of investment in the gold depends solely on the investor’s goals, objectives of the investment, the risk bearing appetite, liquidity, view of the market, economical, financial, political situation and the investment opportunities. The investment in gold should be 10% to 20% of the total portfolio investments. One should make a note that having gold in your portfolio will make it less volatile than the portfolio sans gold.

You can invest in gold by two ways either the physical form of gold (gold coins and bars) through the banks and jewellery or invest in the non physical form Gold Exchange Traded Funds (GETFs) through the brokers or other authorized entities. The gold ETF are the mutual funds listed in the NSE and BSE. The investment objective of the gold ETFs is to provide the returns that before expenses closely correspond to the returns provided by the domestic physical gold price. You can buy the gold ETF and it is just like buying the gold in the electronic form and you of course can buy or sell them just like you buy or sell stocks of any company through your broker in NSE.1 ETF unit is equal to 1 gram of gold in spot and they are backed with high quality physical gold.

The salient features of the GETF are that it is so simple that you can buy just 1 unit, and 1 unit is equal to 1 gram of gold, since it is easy to buy so you can keep buying the unit by unit as per your convenience and requirements and keep on building the wealth. It is safe as the quality is assured and the d mat holding allows the security. Moreover the gold ETFs prices are available and are transparent on the NSE website and can be sold any time through your broker. GETF is easy to sell unlike the gold coins, bars and jewellery. The banks don’t buy back gold coins or the bars but in the case of the GETF you get the same price for your gold ETF unlike other forms of the gold and that too throughout India. The GETFs are in the d mat form so the worry of the theft is undone and you also save upon the charges of the locker. Another big advantage with the GETF is that there are no making charges as incurred in the case of the jewellery and if you buy gold from the banks which is also expensive as the banks also charge some premium for the purity. The physical gold prices may vary from state to state and also attract the VAT tax. The GETF has uniform price pan India devoid of VAT, you have to pay the brokerage only. Since the gold is actively traded in the exchange so one can easily liquidate the position during the market hours. Moreover the authorized safe keeper custodian source of the gold is LBMA (London Bullion Market Association) who are the approved refiners on behalf of the investors and the purity of the gold is 995 parts per 1000 that is 99.5% pure and this degree of purity is called 24 carat gold.

Moreover investing in the GETF does not attract the securities transaction tax (STT) since the GETFs are traded just like the stocks on the exchange hence the costs involved are similar to trading in the equities. The transaction charges in the GETFs are lesser than that of the trading in the equities that is Rs 1 per lakh in the GETF as against Rs3.5 per lakh of the turnover in the equities. All types of the investor individuals, corporate, institutional can invest in the GETFs. All you need to do is simply register yourself with a broker and fill up the KYC form, open a d mat account, post margins and you can start trading. Some brokers have also started offering the SIPs or even you can as per your convenience keep on purchasing a fixed number of the GETFs all by yourself as the gold units are automatically credited to your d mat account on t+ 2 days and there is no entry or exit load imposed by the fund, Since the GETFs are classified as the mutual fund scheme so you need not pay any security transaction tax or the wealth tax unlike in the case of the physical gold. All it takes is just some smart moves in investment not for today but invest for tomorrow. 

Mutual Fund

Types of Mutual Funds in India

There are three primary types of Mutual Funds by Asset Class in India.

1. Equity mutual funds: These funds invest maximum part of their corpus into equity holdings. The structure of the fund may vary for different schemes and the fund manager’s outlook on different stocks. The Equity funds are sub-classified depending upon their investment objective, as follows:

Diversified equity funds
Mid-cap funds
Small cap funds
Sector specific funds
Tax savings funds (ELSS)

Equity investments rank high on the risk-return grid and hence, are ideal for a longer time frame.

2. Debt mutual funds: These funds invest in debt instruments to ensure low risk and provide a stable income to the investors. Government authorities, private companies, banks and financial institutions are some of the major issuers of debt papers. Debt funds can be further classified as:

Gilt funds
Income funds
Short term plans
Liquid funds

Debt Funds rank lower on the risk-return grid and are suitable for shorter investment time frames.

3. Gold fund: A gold fund is a mutual fund that invests in 99.9% pure gold. This gold investment is a paper investment and does not attract any making charges that a gold jewelery would.

Gold Funds are a great option for those who want to buy gold for their kid’s wedding in few years.

China Looses Shirt, Greek Retreats, D-St Abuzz

As the China’s bourses took a plunge in the recent weeks, the concerned departments immediately went into action for intervention. The government initiative also included halting a IPO setting up a stock buying fund of $19.3 billion and also slapped a ban on the state owned companies selling shares of the listed units.

The probe is going on under  the  public security ministry sniffing some foul short sellings and following could be the reasons for the Chinese leaders to take the action, the rising capital, shielding the broader economy, the political stability, stability of the Yuan and last but not the least the  reputation factor  as China has been pressing ahead globally with an infrastructure bank that rivals existing institutions and pressing the china’s claims in the south China sea and the Chinese Prez has taken the responsibility for the country’s economy by appointing himself at the couple of key positions in the policy committees and on the other hand the collapsing market would counter the China’s claims that it deserves more say in the global market

The global stock markets heaved a sigh of relief and rallied briefly after the European Union leaders cracked a deal with Greece to keep the bankrupt country in the euro zone, and in the Indian bourses the markets were led by banks, auto and tech. As of now the investors will focus on the corporate earnings and the further cues will be generated progress of the monsoon and the monsoon session as well as the how this deal amongst the Greece and the European Union emerges in the Greece parliament.

We may not relate to Greece but China is one of the materially giant market, but still the flavor of the emerging markets will be back on the Indian market as the Greece and the Chinese headwinds are way behind us, as less money could be chasing the stocks in the upcoming months with Rs40K crores worth of the tax free bonds to gush the financial markets , so many clodhoppers investors are waiting to fish for the long term risk free interest returns will park fresh funds in these securities.

The continuous inflows from the local institutions and the HNI as well exhibited a high degree of resilience in the last two months. If a chunk of this slice flows into the tax free bonds and inflow from the FIIs end continues to be muted than in this condition the stocks would face the brunt. On the other hand in the case of the structurally sustainable inflows into the equity mutual funds remains intact but in the second half of the 2016 the inflows of the equity mutual fund may abate mainly due to a very sturdy pipeline of the colossal 40K crores of the tax free bonds, but the strong undercurrent in the transition of the household savings from the physical to the financial assets moderation will be somewhat short-lived.

At the present scenario of the bond yields an investor can earn as much as 7.5% by going for the tax free bonds which maturities of 1 or 2 decades, since they are non taxable and so they appear to be more attractive than the taxable debt instruments, here the timing of the issuance is utmost important because if in one year the equity returns during the bond issuance is lesser than the yield  than some of the HNIs fund may move into the tax free bonds, and if on the other hand the equity markets picks up on time than  a major change is expected in the allocation. In the June 2015 the domestic mutual funds have bought equities worth Rs10,320 crores which is the highest ever since the April of the 2007, and with the persistent  inflows the domestic mutual funds have continued to remain as net buyers of the Indian equities, they have flushed in to the tune of Rs33,600 crores this year. 

The Sensex since this June has  dipped by mere 1% point as compared to 9% drop in the (Morgan Stanley Capital International)MSCI emerging market index  which is the key benchmark tracked by the global fund managers during the fund allocation in the various emerging markets.

The ministry of finance has mandated some seven large state owned companies to sell tax free bonds to raise Rs40k crores and so some minor impact is expected on the equities in the latter half of the current fiscal year as the tax free bonds with no tax liability on the interest earnings are very enticing investment bet not only for the HNIs but also for the institutions. India is all set to remain the most lucrative markets amongst all the emerging market peers.