MBA 5

Prashant S Sawant

Gold investment

Buy gold & sit on it . That is the key to success.

Gold

Gold holding by India as of dec 2013 ?

Ans : 558 tonnes

Why people invest in gold ?

Why people always make a loss when they invest in gold in India ?

Gold smuggling

Year No of cases Value of seized gold ( Rs Crs)

2010-11 121 17.22

2011-12 504 42.38

2012-13 885 107.51

2013-14 700 250

Smuggling

What was the reason for increase in smuggling ?

Between mar 12 & aug 13, the import duty on gold was raised from 4% to 10%.

Why ? To contain fiscal deficit ? Q : What is the per kilo profit if gold

smuggled from Dubai to India. One more rule : 20% of imported gold

had to be ploughed back into exports.

Gold historic pricesOn March 31st Price of 10 gms of gold (Rs)

1967 60

2000 4,395

2001 4,410

2002 5,020

2003 5,260

2004 6,005

2005 6,165

2006 8,210

2007 9,250

2008 12,125

2009 15,105

2010 16,150

2011 20,391

2012 28,400

Gold buying

Investment or religious requirements ?

Festivals, Birthdays, Naming ceremonies, weddings , contests etc

Cost of ornaments = Cost of Gold + ???

Making charges More intricate design, making

charges are ??? Gold can not be called investment ,

why ? Investment = Buying – Selling

Gold buying … contd

Why gold is never sold in india ? Gold purchase is always connected

to some some occasion hence has emotional value.

Why gold investment is a bad investment in India ?

1. Never sold, emotional reasons 2. Making charges

Ways to invest in gold

Gold bar Gold Coins Gold ETF Gold fund

Gold Bars & Gold Coins Why invest in bars/coins ? Minimal/zero making charges. What is the advantage of above ? What we should check while buying

these ? Markings indicating ??? Weight & quality ( Purity ) Who in India only sells gold but

doesn’t buy gold ? Banks

Gold Bars & Gold Coins..cont Available in different weights. Min

gms ? 1 gm Bank issues certificate

mentioning ??? Weight & purity Some banks ask extra amount for

certificate. Should we pay extra & get the certificate ?

No as banks don’t buyback & jeweller may not value the certificate & will use his own method to check weight & purity.

Gold ETF GETF These MF are like sectoral MF ? Invest only in gold . Units are sold NAV depends on ? Actual gold price in the market Which problems of coins/bar are

taken care of in this type of investment ?

Making charges & storage

Gold ETF…. contd You invested Rs 50000/- when the price of

gold was RS 2000/- per gm. How many units you will get ? 25 units. Price of gold goes to Rs 2500/- What is the current value of your

investment? Rs 62500/- Profit ? Price of the gold goes to Rs 1500/- Profit/loss ?

Advantages of GETF over physical gold

Making charges No emotions Safer ???

GETF charges

Type of charges ? Operational cost ( around 1% to 2%) Brokerage ( around 0.5%) Hence the calculation shown earlier may not be

exact . But the difference will be small. Compare GETFs in the market for best prices &

lowest expenses. Making charges are typically what % ??? 5% to 20% GETF are open ended MF hence need demat ac.

In nutshell : GETFs No tension of physical gold Can buy a very small amount of gold. No making charges . Only

charges ??? No need to worry on purity & quality

of gold as SEBI has mandated the same.

Buy/Sell on computer . No actual visit to jeweller/bank.

Some dis-advantages

Operating cost to be careful of. Operating costs are low because it is

passively managed fund. Annual charges of demat ac. Brokerage fee to be paid every time

we buy or sell.

Gold FoF

FoF : Fund of Funds These funds invest in GETFs.

Gold FoF & GETFs

FoF each unit can be a fraction of GETFs. GETFs require minimum quantity of gold ? Demat ac is not reqd . Advantages ? No charges ? SIP possible only in Gold FoFs. Gold FoFs have higher expenses ( around 0.5%

over the cost of GETFs). Some FoFs charge exit load if you sell the units

within 6 months to a year of purchase ( around 1% to 2% of total value).

GETFs have no exit load.

Important differentiator

GETFs & GFoFs invest in ? Gold Gold MF invests in ? Shares of gold related companies.

What is the difference ? Difference of gold price movement &

performance of companies.

Interest

Gold in bank locker , interest earned ?

Gold in bank ac , interest earned ? 3% per yr on actual value of gold Deposit period : 3 to 7 yrs To declare the source of gold.

Gold loans Who gives gold loans ? Banks & NBFCs Loan upto what % value og gold ? 90% (earlier). March 2012 , RBI mandated max 60%. NBFCs can lend only against gold jewellery Not against gold coins/bar Banks don’t have these restrictions Most convenient , hassle free & quick Challenges of Gold loans High interest rates Gold prices crash ? Deposit more gold or repay the difference Gold is auctioned if loan is defaulted.

Gold loans in market

Muthoot Manappuram IDBI Bank : 10% per year interest

payable monthly. Other banks

How to invest ?

If buying gold ornaments , things to remember ?

Lower making charges & purity Buy from reputed outlets & get bill

mentioning weight & quality of gold. Gold bars/coins can be bought from

banks/ jewellery stores. Get the receipt. Banks charge the premium on the gold

they sell & ??? Don’t buyback the gold.

How to invest ? … contd

For investment in GETFs , what is required ?

Demat ac Demat ac reqd for gold funds

investment ? No

Points to consider before investing What is the price of the gold on that

day ? What are the making charges ?

Range ? 7-22% ( Waman Hari Pethe, Vashi) Is the gold branded ? Can it be sold

to any jeweller other than the seller ?

For bars/Coins, check for quality, weight & making charges , if any .

Advantages

Very liquid Can be bought in various forms ??? Can take loan against gold Safer than equity investment in

terms of volatility

Dis-advantages

Careful while buying Careful while storing Making charges Slow growth except during periods of

economic & political uncertainty.

Investment meter

Safety ***** Liquidity ***** Returns ***

Tax impact Tax @1% is applicable when you buy gold

jewellery worth more than Rs 5 Lakhs. Tax@1% is applicable when you buy non-jewelley

gold items (???) worth more than Rs 2 Lakhs. Investment in physical gold ( ornaments,

coins,bars) also attracts capital gains & wealth tax.

If it is sold within 3 yrs, profit is added to income. It it is sold after 3 yrs, 20% LT capital gain tax on

profit after taking indexation into account. Can avoid LT capital gains tax by investing the

profit in capital gains bonds or residential property.

Tax impact… contd

Wealth tax@1% is applied when your wealth exceeds Rs 15 Lakhs.

CA calculates wealth. No wealth tax for GETFs. Profit from GETFs or FoFs is taxable. Taxation is similar to debt MF. STCG if sold within 3 yr. Profit added to

income. LTCG if sold after 3 year. @20%. As of 31st mar 2014, Debf MF has 1,90,770

crs.

Thank you.

Prashant Sawant 9820408795 Global training group