Skip to main content

Embrace Gold Bonds this Diwali


Deepawali, the festival of lights is one of the most celebrated festivals in India. This festival embarks the victory of good over evil, hope over despair and knowledge over ignorance. It is celebrated to mark the return of Lord Ram to Ayodhya after 14 years of exile and his victory over Raavana. It is said that Lord Ram reached Ayodhya during Amavasya (night), and people of Ayodhya lit hundreds and thousands of earthen lamps to show him the way to palace. Till date this tradition has continued.
Diwali pooja without Lakshmi Pooja is rendered incomplete. People tend to buy gold/silver coins or jewelry during Diwali since it is considered auspicious. In fact it is deemed as good as inviting Shree Lakshmi herself to one’s home. Even if we talk in terms of Personal Finance, Gold adds on to diversification of one’s portfolio and is also a good hedging tool. Though, its participation in one’s portfolio should not be more than 10-15%. In current times, handling physical gold has become more of a menace. Due to security reasons one cannot keep it at home. It needs to be deposited in the bank locker which again has its own cost. Plus, it doesn’t offer any return, market rate is its only return. Physical gold is sold post melting, so one has to bear the charges of the same which will be approx. 4-6% of the final Gold price.
Why does one need to go through all this trouble for physical gold – let’s embrace Gold Bond this Diwali. What is a Gold Bond? – Sovereign Gold Bonds are government securities denominated in grams of gold. They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity. The Bond is issued by Reserve Bank on behalf of Government of India. (source: http://finmin.nic.in/). You can buy these bonds both in paper and demat form. These bonds carry a 8 year tenor with exit options available at 5th, 6th and 7th years. And, if one still wishes to sell these bonds before stipulated exit windows, he can do so in the secondary market. You can buy these bonds from Scheduled Commercial Banks and designated post offices. The best part of having these bonds is that they also offer interest unlike physical gold or even Gold ETF’s. Gold bonds offer 2.75% p.a. interest (2.5% p.a. in Series III tranche) on initial investment which is paid semi-annually. These bonds are issued in denominations of one gram gold and in multiples thereof. One can buy minimum of 1 gram and maximum of 500 grams every fiscal year. Only Resident Indians can apply for this bond. Eligible investors include individuals, HUF’s, trusts, universities, charitable institutions, etc. In addition to providing sovereign guarantee, gold bonds are also cheaper than physical gold which has making charges and Gold ETF which has recurring annual management charges of up to 1% of net assets. The biggest advantage which Gold bond has on its sleeve is its taxability. These bonds are exempt on Capital Gains Tax. If one holds these bonds till maturity he will get this advantage.  Since these bonds are linked to the market the maturity amount will depend upon the gold prices prevalent at the time of maturity.
The sixth tranche of Gold Bonds 2016-17 has already been launched and is available for investment till 2nd November, 2016. Due to festive season, Government is offering a discount of Rs. 50 per gram and the bonds are being offered at Rs. 2,957 per gram. The additional interest being offered for this tranche is 2.5% p.a. payable semi-annually. Since, these bonds have higher liquidity risk in comparison to physical gold or ETF’s one should link them to their long-term financial goals and go ahead. You can get more details with regards to this bond at:  https://rbi.org.in/


Charu Hastir, CFPCM is founder of www.theriteplan.com. Rite plan is an online financial planning portal created to achieve a single objective of providing easy and Do It Yourself Financial Planning to netizens. Rite Plan is wholly owned by Tikkun Olam Financial Planning Services LLP. Please visit: https://theriteplan.com/index.php?route=common/home/
Labels:

Comments

Post a comment

Popular posts from this blog

What is Financial Planning?

What is Financial Planning? One of my friends came to my place for a cup of coffee and while chatting over how life is going, where is it heading, he told me that his elder daughter wishes to go abroad for her graduation. And when I asked him that how is he planning to fulfill her wish, he just laughed it off saying that her graduation is 10 years away, why should he get worried about it now. This attitude of his made me think about the importance of planning ahead of our financial goals and how many of us are conveniently ignoring this very fact. The Term Financial Planning defines itself as planning your finances well. It is a perfect marriage between your finances and your life goals. Efficiently managing your expenses and savings in order to achieve your future goals is nothing but Financial Planning. What are future goals? They differ from person to person. Some might want to take a luxurious trip abroad and some might wish for own home. But there are few goals which m
9 comments
Read more

Should you start Big when it comes to your investments?

The other day I met a Startup entrepreneur who was just talking about the importance of starting and that also starting big. As per him, a small game or investment had more chances of failure in comparison to playing big. I could understand being an entrepreneur myself that he is only thinking about launching big obviously with the backing of some deep pocketed private equity firm. But hey, I have also seen start ups who started small and made it big eventually slowly and steadily step by step. Same is the case when it comes to investments. Should we start only when we have a big chunk sitting in our bank account or should we start small in systematic manner slowly accumulating our wealth. Let’s hear out some benefits of investing regularly rather than waiting to strike gold with the larger chunk of money. 1.        Less fear of markets If you are a regular investor who invest systematically, you don’t need to time the markets as your investments are going to the markets
2 comments
Read more

Why your Financial Plan is always Work in Progress?

Ever heard someone saying, this is my last month in the Gym, after that there is no need for me to workout ever again…I will stay fit for the rest of my life without any fitness regime. No one can retain the perfect physique forever without exercise. It is always a constant effort to stay at the desired level for almost anything that you think of. You cannot be a great chef without trying out new recipes, you cannot be a great marketer without adapting to new marketing strategies, you cannot be a great fashion designer without adapting your fashion sense towards the trending styles. Leave all of this, you even cannot even think of becoming a good parent if you don’t change from old tricks to new methods for upbringing this generation kids. If you have to upgrade your act with every other thing in life, then how your investments could be any different. The Financial Planning Process has 6 broad steps with the last one focussing on the importance of monitoring and revision of t
Post a comment
Read more