DSIJ Mindshare

All That Shines Is Gold

From time immemorial gold has remained the most cherished investment option for investors across the world. Coming to the Indian perspective, gold jewellery has got an emotional attachment with Indians as a large percentage of Indian families use gold as an exchange gift during marriages and child birth as a gesture of overwhelming love and affection. The domestic jewellery market consists almost 80 per cent of gold jewellery. The main driver being the investment factor, those from the middle-class and high net worth individuals (HNIs) buy gold as a form of security.

At present the markets across the globe are witnessing a bullish trend and with this bullishness many big investor gurus have become or taken a cautious stance. They have started to look out for alternate investment horizons as they believe that investing in equities may have become a bit riskier. Gold, which has been on the minds of the investor fraternity, has started sparkling and is trading at an almost all-time high. In the last few years since the global meltdown in 2008 this metal has seen good northward movement. It should be a strategy for every investor that they diversify their portfolio in such a manner that a certain part of the investment goes to safe havens. It is always a better strategy to invest around 5 – 10 per cent of your funds in gold.

Moreover, in the recent past we have seen the USD weakening against all the major currencies across the world and this has sent a shiver of fright in investors who have parked their funds in USD denominated assets as the values may depreciate going forward. In fact, none of the other currencies across the globe provide the kind of comfort level which could act as an alternate option. That is why there has been an increased interest in gold which is clearly visible as it has witnessed 31 per cent appreciation in its prices in the last 12 months.

Now the question is that if you want to park some of your funds in gold then which are the options that you should look forward for? We find that instances of dubious investment-related services and products are growing at an alarming rate. The best form to hold gold, from an investment perspective, is probably gold bars (termed ‘biscuits’). Gold bars are standardised products whose purity is assured by the hallmark (seal of the producer) that it carries. There are no making charges involved and as the purity and quantity is assured, on liquidation you do not have any surprises in store for you. As an individual with limited knowledge about a product like gold you probably are not geared to ask the ‘right’ questions while purchasing gold.

Another option is to buy gold coins which are available at all leading banks and with renowned gold retailers like Tanishq, Reliance Jewellery, etc. Another option that comes to our mind is Gold Exchange Traded Funds (ETF) and direct purchase through commodity exchanges. Gold ETFs are funds that passively track the performance of the gold bullion. These funds buy gold with investors’ money (on the behalf of investors) and convert it into units. The units of Gold ETFs can be bought or sold on the stock exchange, just like the shares of companies.[PAGE BREAK]

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For this the investor needs a demat account. The daily net asset value (NAV) of gold ETFs is decided by the price of gold. Here investors can only exchange their units for cash and not physical gold. But the minimum number of units that the AMC would accept for this redemption has to be in multiples of the creation unit. This creation unit is different for different AMCs, varying from 100 units to 1,000 units. Therefore, this looks like a good investment option when it comes to investing in gold.

Coming to the commodity exchange in India we have three options - the National Commodity and Derivative Exchange, the Multi Commodity Exchange of India Ltd, and the National Multi Commodity Exchange of India Ltd. All three have electronic trading and settlement systems and a national presence. All you need is money for margins payable upfront to exchanges through brokers. The margins range from 5-10 per cent of the value of the commodity contract. For settlement all the exchanges have both systems - cash and delivery mechanisms. The choice is yours. If you want your contract to be settled in cash, you have to indicate at the time of placing the order that you don’t intend to deliver the item.

If you plan to take or make delivery, you need to have the required warehouse receipts. The option to settle in cash or through delivery can be changed as many times as one wants till the last day of the expiry of the contract. The answer to the question of where you should buy gold from is simple - give the jewelers and retailers a skip in case you are looking at buying gold. Instead you can look out for a credible bank and of course always buy standard certified gold because you will then be assured that it is pure gold and will have proof of that. Even if the prices may now be on the rise, it is still not too late to consider gold as an investment option. That’s one way of providing stability to your portfolio.

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DALAL STREET INVESTMENT JOURNAL - DEMOCRATIZING WEALTH CREATION

Principal Officer: Mr. Shashikant Singh,
Email: principalofficer@dsij.in
Tel: (+91)-20-66663800

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Email: complianceofficer@dsij.in
Tel: (+91)-20-66663800

Grievance Officer: Mr. Rajesh Padode
Email: service@dsij.in
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