 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 YearNo of casesValue of seized gold ( Rs Crs)

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 prices On March 31stPrice of 10 gms of gold (Rs) , , , , , , , , , , , , ,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  is applicable when you buy gold jewellery worth more than Rs 5 Lakhs.  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 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  As of 31 st mar 2014, Debf MF has 1,90,770 crs.

 Thank you.  Prashant Sawant   Global training group