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/
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