1. Akshaya Tritiya: From Sovereign Gold Bonds scheme to mutual funds, here’s how to go about making investments in yellow metal

Akshaya Tritiya: From Sovereign Gold Bonds scheme to mutual funds, here’s how to go about making investments in yellow metal

Ahead of Akshaya Tritiya, the government has launched the first tranche of sovereign gold bonds for this financial year and the eighth one since November 2015.

By: | Updated: April 25, 2017 6:51 AM
The bonds will be available for subscription till April 28 and the issue price has been fixed at Rs 2,901 per gram of gold.

Ahead of Akshaya Tritiya, the government has launched the first tranche of sovereign gold bonds for this financial year and the eighth one since November 2015. The bonds will be available for subscription till April 28 and the issue price has been fixed at Rs 2,901 per gram of gold. Like the past two tranches, the government is offering a discount of Rs 50 on the nominal value.

The nominal value is fixed on the basis of the simple average of the closing price of gold of 999 purity published by the Indian Bullion and Jewellers Association for the week preceding the subscription period (April 17 to 21). The rate of interest on the bonds will be 2.5% per annum, payable semi-annually on the nominal value. The bonds will be sold in banks, post offices, the BSE and NSE, and Stock Holding Corporation of India.

Buying on Akshaya Tritiya

Indians believe that investing in gold on Akshaya Tritiya or Akha Teej (April 28) brings good fortune. One can invest in the metal by buying jewellery, coins, bars or take the paper route by investing in gold exchange-traded funds (ETFs) of mutual funds or sovereign gold bonds.

On the occasion of Akshaya Tritiya, jewellers offer discounts on making charges to buyers. Even banks offer marginal discounts on coins and bars to their customers. The demand for gold ETFs is picking up for investment because of the low expenses, higher tax efficiency and price transparency. Gold SIPs enable an investor to invest in the yellow metal in paper form and saves the investor the hassles of storage. One does not have to open a demat account to invest in gold SIPs, unlike gold ETFs, and can save on the charges like annual maintenance of the demat account, delivery and brokerage and transaction charges.

Demand tapering

Households’ demand for gold has been tapering off in India. Data from the World Gold Council show that gold demand in the country dropped to a seven-year low of 676 tonnes in 2016 because of a host of factors like the jewellers’ strike after the Budget, PAN card requirement, 1% tax at source on cash purchase of gold over Rs 2 lakh and the demonetisation of high-value currency notes in November by the government. The demand for the metal peaked at 1,000 tonnes in 2010 and has been falling ever since.

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Even returns from gold have not been that encouraging. The prices, which hit a high of $1,375 in July last year, dropped to $1,135 by December. However, in the past few weeks gold prices have been moving up as global investors are taking refuge in safe-haven assets because of the geopolitical tensions over North Korea and a weakening dollar. For Indian gold investors, the strong rupee also played spoilsport.

Way ahead

Analysts say every investor’s portfolio must have 10-15% allocation to gold, which can also act as a hedge against inflation and balance the fall in returns from equity or bonds. For most Indians, gold as an asset class has a different kind of connect and importance because of its long-term endurance value, proven hedge against inflation and as a hedge against currency risk.

Gold bonds are a better way to invest in the metal as the investment will earn an interest over and above the appreciation in the value of gold. The tenor of the bond will be for eight years and the buyer will have an exit option from the fifth year, which can be exercised on the interest payment days.

The minimum quantity of investment will be one gram and the maximum is 500 grams per person per fiscal year. The bonds can be used as collateral for loans, similar to other financial products such as mutual funds, life insurance policy, public provident fund, etc.

Given global uncertainties, gold is a good portfolio diversifier; investors can look at sovereign gold bonds for long-term investment.

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