Market Commentary 07 Jul 2017
The year 2016 taught us to “be prepared for the unexpected”. Be it Brexit or Trump as POTUS, reality was far away from widespread expectations. Considering the optimism about the global economy and stillness in gold prices, what can be a lucrative investment approach for gold for 2017?
Here are some of the routes you could consider to create a well-balanced investment portfolio featuring gold as an asset that guards and grows your wealth despite unpredictability.
Gold Coins, Bars, and Jewellery
The allure of owing gold coins and bars as an asset lies in the ease and flexibility of purchase and liquidity at unrestricted amounts and frequencies.
Gold jewellery has a cultural and ceremonial significance in the country. It is a cherished heirloom that is handed-down through generations to keep the family legacy alive. It is considered an auspicious token to present someone on a religious or festive occasion.
Given the metal’s popularity, the Government of India has recently launched the Indian Gold Coin – the only gold coin in India bearing a Bureau of International Standards (BIS) hallmark. It is of 24-karat purity and 999 fineness, replete with in-built anti-counterfeit features and tamperproof packaging for safety and easy recycling. A valuable addition to your investment portfolio, this coin can be purchased at designated and recognized MMTC outlets and from registered bank branches, in denominations of 5, 10 or 20 grams.
Units of Gold Exchange Traded Funds
Investing in units of a Gold Exchange Traded Fund (ETF) is just like investing in a company’s shares in the equity market. Just as the latter represents an ownership stake in the underlying company, each unit of the ETF owned represents 0.5 to 1 gram of gold. The price of the unit is linked to the prices of physical Gold and can vary depending on market conditions and the demand and supply of gold.
A few key reasons why you should consider investing in ETFs are:
Gold Mutual Funds
A Gold mutual fund is a collective investment scheme where the mutual fund company will invest money collected from a large number of investors into Gold ETFs. Why should you buy units of gold funds when you can invest directly in ETFs? Just as an equity-related mutual fund is safer and easier as compared to buying shares directly, a gold mutual fund could be a better option for those who prefer a professional fund manager to actively manage their gold investment portfolio.
Some other things that you need to know about investing in Gold mutual funds are:
Sovereign Gold Bonds
A sovereign gold bond (SGB) is a debt instrument issued by the Government of India at the prevailing price of gold. These bonds have a maturity period of 8 years, with exit option from the 5th year. Investors will get a fixed rate of interest of 2.75% per annum (payable every 6 months) on the initial value of investment.
Redemption is at the market price of gold prevailing at that time, thus presenting the opportunity of gains from any appreciation. Say, you bought 10 units of SGB, when gold’s market price was ₹3,000 per gram, for ₹30,000. At the time of redemption, gold prices have appreciated to ₹9,000 per gram. So, you sell for ₹90,000, making a total profit of ₹60,000.
While the minimum tenure makes it a mid-term investment option, here’s what you need to weigh it against:
To summarise, here’s how you could plan your gold investments this year:
Opt for ETFs if you prefer paperless and passive portfolio management
Choose from a range of gold mutual funds if you prefer active and professional management
Wait for the 2017 Sovereign Gold Bond issue to open and stock on the world’s most favourite precious metal if guaranteed rate of interest is what will make your investment portfolio powerful
Capital gains refer to the gains that the investors in gold have made from the sale of gold. Capital gains on gold are taxed in India. Therefore, one must make sure to ask for a proper bill while purchasing gold.
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