Investment in Gold

It’s been a tradition to buy gold in India for centuries; it’s a way of life. The amount of gold people buy would vary as per the financial condition. But gold we all have in some form or the other; traditionally it’s been jewelry and ornaments or coins and bars from the point of saving for a rainy day; in times of need it could be pledged and a loan can be availed against it; but mostly it’s passed on from one generation to the next with lot of sentiments attached. It’s not an uncommon sight to see a young bride wearing ornaments belonging to her grand mother on her wedding day. Gold in India has traditionally been a form of ‘Stree Dhan’ a security; a woman gets from her parents and passes on to her daughters. Over the years gold has emerged as an important asset class which has been providing for capital appreciation apart from providing needs of individuals in form of jewelry and ornaments. Let’s explore the various avenues for investing in the yellow metal.

                  

Physical Gold

This is the traditional way to buy gold in form of ornaments and it has emotional angle attached; and also a matter of great pride and satisfaction along with its visual appeal. Apart from ornaments, coins and bars can be purchased from reputed financial institutions. The disadvantage is the degree of its purity and safety.

Sale of physical gold is taxed at slab rate as short term capital gain if sold within three years and long term capital gain,if sold after three years, taxed  at 20.6% with indexation. Investment in physical gold is liable to wealth tax if total assets are in excess of  Rs.30 lacs.

     

Gold ETF

ETF is exchange traded fund which is an investment fund traded on stock exchanges. One needs to have a demat account. Buying Gold ETF is quite simple like buying equity stocks and can be done with your online trading account. There is no upper limit however; the smallest quantity that one can buy is 1 unit of the gold ETF which is equivalent to 1 gm or ½ gm gold as the case may be. The advantage is there are no hassles of bank lockers and safety and one can liquidate ETF like any other equity stock; and at the same time no loss of making charges or purity issues.

Sale of gold ETF is taxed at slab rate as short term capital gain if sold within a year and long term capital gain if sold after one year, at 10.3% without indexation or 20.6% with indexation.

E-GOLD

E-Gold is a new incarnation of gold, innovated by National Spot Exchange (NSEL), which enables investors to invest their funds into gold in smaller denomination and hold it in demat form. It is available on the pan India electronic trading platform set-up by National Spot Exchange, which can be accessed through members of NSEL or their franchises. It provided a unique opportunity to buy, accumulate, hold and liquidate "Electronic Gold (E-Gold)" as well as to convert the same into physical gold coin/ bar in a seamless manner. In this mechanism investors own the gold which is reflected through the demat account while equivalent physical gold is maintained in the exchange designated vault; and the investors have the option to take physical delivery.  E-gold can be converted into physical gold for quantities as small as 8 gm, while gold ETFs offer the option of physical delivery but only for a denomination of over a kilogram. E-gold wins hands down against gold ETF. In India, the rural community and the middle-to low-income group have a tendency to flock to gold. For the typical Indian investor, e-gold is more suitable as it provides the option of delivering the yellow metal and, hence, bridges the gap between using it for investment and the traditional, auspicious reasons for buying it. Accumulating such a huge amount of gold is not feasible for small investors.

Sale of E-gold units would be taxed as physical gold and investment in E-Gold would also be liable to wealth tax if in excess of Rs. 30 lacs. More on this would follow later. Till then happy investing. Stay Blessed!!

Money Matters for Children

I believe that understanding the importance of finances and its future planning, is a lesson that parents should start early in life. Because when it comes to understanding your dreams and fulfilling them, there is no time like the present. However, there are many people known to me who still believe that that their kids are too young to learn about money. On the other hand many avoid this topic not because they don't want to talk to their teenage children about a serious aspect like money; but they find themselves unsure of what to tell them and how it can help them in that stage of their life. There are different ways to inculcate these values and it would depend whether the apple of your eye is a teenager or in pre-teens.

Money matters for the young

Parents don’t have to be finance whizzes to impart financial education. Idea is not here to create junior MBAs. Small little things go a long way. Kids can even learn from little things like turning off the lights in rooms they are not using. The lesson happens on the spot when children ask why the lights need to be turned off. A parent who responds by explaining that electricity costs money teaches the consequences of leaving lights on.

It’s not possible to have everything

As a parent you might want to give everything your child desires. Yet, in his interest it would be best if you do not always give in to his wants. Make your child understand that any product or service is bought with money, which is a limited resource. Making your child responsible for his/her spending is one of the best ways to teach money management.

Teenagers

The teenage years of our lives are usually the most crucial ones. This stage is the stepping stone for what we choose to do in our lives. This is the stage where start to form opinions, ideas, dreams, thoughts, goals we want to fulfill. Then how can we as parents ignore one of the most important lessons in life?  The money matters. With the changing times, it has become not only crucial to teach teenagers the importance of financial planning, but also a necessity. Understanding the world of finance and wealth will lead them to the path of attaining financial freedom. And this can be done in a very simple manner.

Financial responsibility and living on a budget

 Every teenager must be made financially responsible at a young age. Holding them accountable for the way they treat money not only creates respect for wealth but also teaches them how to manage the money they have. One way to create a sense of responsibility is to give them their pocket money for the month which they should spend judiciously. Another way to create a sense of responsibility which actually has come from the west; and I’m not sure whether my Indian friends would agree with me on that; is to make them earn their pocket money by doing chores around the house.

Teenagers do not believe in the idea of living on a budget. They come to the parents whenever they need money and parents give it to them, irrespective of the amount. Instead of handing it out to them, teach them to live on a budget.  I recall this particular incident of a relative who used to give her teenage daughter a certain amount of money every month. And if she ever wanted more, she would have to 'apply' for a 'loan' to her mother, who would then make her daughter pay it back in 'monthly installments'. This not only helped her understand how the banking system works, but also taught her the way to make the best of what she has.

Talk about the credit
At some point of their life, your teenage child will be introduced to credit cards. Instead of barring him forever from owning a credit card, explain to him how the credit system works and that he is accountable to every purchase he makes on the same.

Involve them in financial discussion
 Do involve children in the financial discussions and decisions and give due importance to their opinion and try to treat them as equals or adults. They will automatically be more willing to do what you say. Once you have introduced your child to personal finance take him with you when you go to meet your financial planner. In fact, you can also request your planner to spend 10 minutes with the child talking to him how to manage his allowance. Financial planning at every stage is crucial. It helps build a bridge that would allow you to move to your goals without any speed bumps. More on this would continue. Till then Stay Blessed!!

         

Some Financial Resolutions for 2012

‘I’ll go to the gym everyday’, ‘no red meat for me’, ‘no sweets’… The list is endless.  Sounds familiar.  Right? Comes the new year and along come many resolutions; most of them health related. It’s good to be health conscious. Health is wealth after all. But how about making some resolutions for your financial health for a change this time around?

     1.     Review and Analyse

I know you have clearly chalked out your short term, medium term and long term goals and they are the writing on the wall. But your short term goals may change due to changes in your lifestyle or circumstances, such as an inheritance, marriage, birth, house purchase or change of job status and that can interfere with your medium and long term goals. It’s very important to revisit and revise your financial plans so that you stay on the track with your long term goals.

      2.     Mind your credit card usage

Credit card these days is synonymous for convenience but convenience comes with a price attached to it. You have a period of 45 to 50 days which is a zero interest period; there after the charges are approximately 3% per month or 43% per annum because it is compounded, not to forget the service charges. Horrendously expensive!  So if you succumb to the pleasures of using a credit card often, it’s time now to start using it judiciously.

      3.     Planning for the Unplanned

Do cut down on the red meat and the sweets and start going to the gym every day, but do have a proper health insurance plan in place if you don’t have any. If you already have one then please ensure that the sum assured is adequate and you pay the premium on time. Same goes for your life insurance and home insurance. I’ll not go into motor insurance details here because it is compulsoryJ.  Apart from insurance another most important thing is to have a contingency fund which is equal to your six months expenses for any unforeseen problems.

     4.     Financial Education for your Children

A little bit of financial education from the very beginning goes a long way in churning out future Warren Buffets. Do not hesitate to discuss financial matters in front of children (teenagers). In fact do involve them in making financial decisions. Explain them the daily budget of the household and how it affects the family. This will create a better comprehension of not only how the household works but also provide awareness for what to do in future.

More on this would follow later.  Do keep reading my blog. Happy New Year!! Stay Blessed!!