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Editorial

Top 5 Ways To Invest In Gold

Gold has a vague history. In times before the 1970s, many powerful countries backed their currency with gold. This was known as Gold Standard. In the United States, every dollar could be exchanged for 1.5g of gold. The world has gotten rid of the Gold Standard for good. Now, gold has become a tradable commodity instead of a currency. Had you bought Rs 1 lakh worth of gold in 2010, it would have been worth Rs 2.60 lakh today. Gold prices have increased by more than ~160% in the past decade. Investing in gold has its own benefits. With innovation and technology, you need not step outside your home to buy gold. In this piece, we explore what are the different ways one can invest in gold.

Types Of Gold Investments

1) Physical

One can use the good old way of walking into a jewelers shop and buying gold jewelry, biscuits, coins, etc. However, you might end up spending more on it since you’ll have to pay for the making charges and also account for a loss of quality with time. In the case of storing in a bank locker, one might end up spending on the locker charges as well. Physical gold might be misplaced, forgotten, or stolen. You might also need to buy a minimum significant amount of gold which might require a high capital investment.

2) Digital Gold

One can invest in digital gold for as little as Rs 1.  Many entities like Digital Wallets, Brokerage Firms, and Proprietary Jewelers offer digital gold. These include – PayTM, PhonePe, Motilal Oswal, Groww, Kalyan Jewellers, Tanishq By Tata, and many others. One has the option of redeeming the digital gold into physical gold. 

One should take note of the ‘spread %’ involved in buying digital gold. This can vary from 2-6% depending on the merchant. A spread is a difference between buying and selling price of digital gold at a given point in time. The buying price for digital gold is always more than its selling period at a given time. The spread amount is used for storage, insurance, trustee fee, etc. 

A 3% GST is levied during the purchase as well as the sale of digital gold. 

3) Gold ETFs

Gold Exchange Traded Funds or Gold ETFs are funds that are tradable on stock exchanges and require a Demat account. Unlike digital gold, they do not have a spread in buying and selling price at a given time. Units of a Gold ETF are backed by real gold. They can be bought and sold at their traded price during market hours. Unlike physical and digital gold, they do not attract GST at the time of buying and selling. Gold ETFs give an edge over digital or physical gold in terms of taxability and cost of holding. 

4) Gold Mutual Funds

Gold Mutual Funds invest in Gold ETFs or gold-related equity shares. Unlike ETFs, they do not require a Demat account. The minimum ticket size of a gold mutual fund is lesser than that of a Gold ETF. If you exit a gold mutual fund before the lockin period, you might be charged an exit load. Gold Mutual Funds can be SIP-based, which means you can invest a small amount over a given period of time.  

5) Sovereign Gold Bonds

Sovereign Gold Bonds are bonds issued by the Reserve Bank of India on behalf of the central government. These can be bought and sold on exchanges. Each unit of an SGB is backed by 1 gram of gold. An SGB pays a regular dividend of 2.50%-2.75% per year semi-annually. An SGB if held till maturity or between 5-8 years of the issue is tax-free. When investing long-term, an SGB as compared to other gold investments proves to be the most beneficial in terms of taxability. For premature redemption, a capital gains tax of 20% is applicable on SGBs.

Since pre-historic times, gold has been a safe haven asset. A person would accumulate gold and sell it in times of crisis to make things work. Once can expect gold prices to inflate during an economic crisis and slump during economic growth. Timing is a very crucial factor while investing in gold in order to maximize profit. Each gold investment type is linked to the market performance of gold. Factors such as liquidity, transferability, and taxability make them different from each other. One should diversify their investments even in gold depending on their short and long-term priorities. Until then, stay home, stay safe, and do thorough research before investing.

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Editorial

Best Investment Options for Beginners

investment option

As of late, we have noticed that many of our readers are confused about how to start their investment journey. The primary motive behind investing your hard-earned income is to fight inflation or a general rise in the prices of goods. The purchasing power of cash in hand or your bank account continuously reduces with time. In order to beat inflation and achieve future goals, you need to invest your money in a variety of financial products.

Our primary mission here at marketfeed is to show the path for every individual to become financially independent. We help you make informed decisions in the beautiful world of finance. However, it is important that we start from the very basics and slowly work our way up. So, let us have a clear understanding of some of the best investment options that can help you achieve financial freedom.

Direct Equity

Direct equity means investing in stocks. When you buy stocks (or shares) of a listed company, you become part-owner of the firm (even though it’s a very tiny fraction). This means that you are directly investing in the company’s development and growth. In the long run, stock markets have always beaten inflation and have delivered higher returns than other asset classes. Thus, stocks are always ideal for long-term investments. To directly invest in shares or equity, you would need to open a Demat account.

However, investing in stocks contains a high level of risk. Stock markets are often very volatile, as a variety of factors (including interest rates, government policies, economic figures, company operations) influence the performance of stocks. You will have to actively manage your investments to limit losses. One needs to have a lot of patience and gain market knowledge to get sufficient returns. With time, you will learn how to pick the right stock and time your entry and exit. Target-oriented and well-researched stock market investments can definitely help you beat inflation.

Mutual Funds

If you are not comfortable with investing directly in stocks due to the risks involved, you can always invest in mutual funds. A mutual fund takes money (investments) from different individual and institutional investors who have a common investment objective. This pooled sum of money is managed by a professional fund manager, who invests in securities and assets to generate returns for investors. 

You can find equity, debt and hybrid mutual funds as a general classification. Equity mutual funds invest in stocks and equity-related instruments, while debt mutual funds invest in bonds and other debt instruments. Hybrid mutual funds invest in a mix of equity and debt instruments. There are various equity mutual funds based on market capitalization, tax-saving funds, sectoral funds, and much more. As per reports, the 5-year and 10-year returns of these equity fund categories were above 10% as of April 2021.

Mutual funds are a very attractive investment option as you do not have to spend much time and effort tracking them. Instead of investing a large sum of money all at once, you could start a Systematic Investment Plan (SIP) and invest small amounts of money periodically (usually every month) in mutual funds. They are very flexible, as you can begin and stop investing according to your convenience. However, one needs to conduct a proper analysis or study before investing in a particular mutual fund. Element of risk is also present as the returns are dependent on market movements.

Bonds

A bond is a fixed-income instrument issued by companies or even government entities to raise funds. Investors can lend their money to organisations in return for fixed yearly interest. At the time of maturity of the bond, you will receive the initial money you had invested and the interest offered on it. Nowadays, bonds offer fixed returns that are at least 2-3% higher than fixed deposits (FDs). Government bonds in India are an ideal investment option as it provides more than 7% guaranteed returns. 

Before investing in bonds, you need to consider and analyse important factors such as coupon rate (fixed interest that the bond pays annually), payment frequency (the number of times the interest is paid to the bondholder), maturity date, and credit rating. A higher-rated bond carries a higher level of safety of investment. AAA-rated bonds are the most secure.

Gold

Gold is one of the best asset classes that can be used to counter inflation. This is because the increase in gold prices and the returns from it have always been able to offset inflation in the past. According to the World Gold Council, for every 1% increase in inflation, there is a 2.6% rise in gold demand. This ultimately leads to an increase in gold prices. However, acquiring and holding gold in the form of jewellery has its own concerns such as safety and high cost.

An alternative way of owning gold is through paper gold or gold ETFs. These are units representing physical gold which may be in paper or dematerialised (electronic) form. One Gold ETF unit is equal to 1 gram of gold and is backed by physical gold of very high purity. The investments made in paper gold are less costly.

What are ETFs?

As the name suggests, an exchange-traded fund (ETF) is a fund that can be traded on the stock exchange. It is a method through which you can buy and sell a basket of assets without having to buy all the components individually. ETFs are managed by finance professionals who own certain underlying assets (such as stocks, bonds, currencies, and commodities). They design a fund to track the performance of these assets and then sell shares of these funds to investors.

ETFs are a great method to diversify your portfolio and manage risks. It is also a cost-effective method of investing and also offers several tax benefits.

Fixed Deposits, Recurring Deposits

Fixed Deposits (FDs) are an investment option offered by banks and financial institutions. It is something that most of us are familiar with. You deposit a lump sum of money for a fixed period and earn a predetermined rate of interest on it. The interest rate of FDs differs from one bank to another. However, the average rate of FDs in India is only 5-6%, which may be insufficient to beat inflation. FDs are favorable for those investors who wish to receive guaranteed, yet conservative returns.

Recurring Deposits (RDs) are a fixed-tenure investment option provided by banks and other institutions that allow individuals to invest a fixed amount every month for a pre-defined time period. The interest rate on RDs is determined by the institution offering them. RDs also offer complete capital protection as well as guaranteed returns.

Government Schemes

Public Provident Fund (PPF) is a long-term investment scheme provided by the Government of India (GoI) that has a lock-in period of 15 years. Currently, the annual rate of interest offered on PPF is 7.10%. The entire amount withdrawn at the end of the 15 years is entirely tax-free for the investor. You can also take loans and make partial withdrawals if certain conditions are met.

Employee Provident Fund (EPF) is a retirement-oriented investment scheme that helps salaried individuals. EPF deductions are a specific percentage of your salary every month, and the same amount is matched by the employer as well. This entire amount is pooled into your EPF corpus or account every month, and you receive interest on it. Currently, the annual rate of interest offered on EPF is 8.50%. At the time of maturity, the entire amount withdrawn from the EPF corpus is entirely tax-free.

The National Pension Scheme (NPS) is another tax-saving investment option offered by the Government of India. Anyone between the age of 18-65 years can make voluntary contributions to this scheme. Investors who subscribe to NPS will mandatorily stay locked in until their retirement and can earn better returns than PPF or EPF. Historically, NPS has delivered ~8-10% returns every year.

Real Estate

Investing in real estate is one of the best ways to diversify your portfolio. Since the value of a real estate property appreciates (or increases) with time, you can earn exponential returns on it. Acquiring a property and renting it out would be an ideal way to earn passive income. However, the location of the property is the most important factor that will determine its value and also the rental income that can be earned from it. In the case of residential properties, investors must always conduct a thorough study of home loan interest rates, offers provided by developers, and government regulations. Another important factor to consider is that real estate is highly illiquid. Properties cannot be sold off and converted into cash quickly.

If you don’t have adequate capital for acquiring real estate properties, you could always invest in a real estate investment trust or REIT. This is very similar to a mutual fund, wherein you can invest small amounts of money on certain income-generating assets and earn a good return from them. A REIT owns and operates several properties such as complexes, infrastructure projects, healthcare units, apartments, and more. The money pooled in from the REIT is used to manage these assets. And, the income derived from these properties or assets is shared among all investors (or unitholders) of the REIT.

Types of Investments in a Nutshell

Conclusion

Now, you have an idea of how to grow your hard-earned income to beat inflation and lead a better life. However, it is up to you to figure out the right investment that fits your profile and financial goals. Start your investment journey only after carefully going through the risks and costs associated with each of them. Go for those investments that you clearly understand from your own research. At the same time, it is vital that you invest your money in different products and diversify your portfolio. More importantly, make sure you do not fall for scammy schemes that promise high returns in a short period. The sooner you start investing, the longer you will stay invested and earn higher returns.

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Happy Investing!

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Editorial

Why Are Gold Prices Falling After Touching A Record High last September?

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In September 2020, gold prices touched a record high of Rs 58,000 per 10 gram. In times of crisis and uncertainty, people tend to buy more gold as it is a risk-haven and comparatively less volatile. There were many reasons why gold prices hit record highs in 2020. The US-China Trade War, negative US bond yield, geopolitical tensions, and uncertainty around the COVID-19 pandemic to name a few. 

Fast-forward to a few months later, gold prices have come down significantly to a 10 month low. As of 6th April 2020, gold is trading close to Rs 45,500 per 10-gram level, which is around Rs 13,000 less than the record high of Rs 58,000. The way the gold prices were soaring, a correction was definitely expected but there is much more to it. There are some economic factors, market factors, and other global factors that have come into play. 

Reason 1: Investors Have More Risk Appetite

During the COVID-19 lockdown, businesses were shut, unemployment was high, global economies were down, households did not have money to spend and had to depend on government support for expenses.

Once things were a little better, governments all across the world release stimulus packages. Central banks across the world reduced interest rates to put money into the system. Loans were offered at low-interest rates and moratoriums were given on NPAs. All of a sudden, markets were flooded with liquidity.

Gold, on one hand, is a risk haven. People invest in gold during times of uncertainty, since gold is globally accepted and can be sold during times of crisis.  When there is too much money in people’s hands, they are likely to invest it in more risky assets. The stock market is one of them. The global stock markets managed to touch record highs. NIFTY and SENSEX touched their record highs as well.

Reason 2: Dollar Zooming 

For the past few years, gold and the US Dollar have had an inverse relationship. The current increase in the US dollar with respect to other global currencies has caused gold prices to decrease. This is because if the US dollar becomes stronger, gold will become relatively more expensive in other currencies causing demand to reduce and therefore the price. Conversely, if the US dollar gets weaker, gold becomes relatively cheaper to buy in other currencies, and the demand increases, and therefore the price. However, it must be noted that gold and the US dollar CAN move together in some cases. 

Reason 3: Rising Bond Yield

In August 2020, the US 10-Year bond yield was ~0.52%. The yield has now risen threefold to ~1.6% in March 2020. When bonds return a higher yield, the cost of holding gold becomes higher. Investors will prefer holding stocks and bonds over gold, as these would give a better return than gold. Investors will start diluting their gold holdings and start pouring that money into the bond and stock market. This will cause gold prices to decline.

Reason 4: India cuts custom duty from 12.5% to 7.5%

In the 2021 Budget Session, the import duties on gold were slashed from earlier 12% to 7.5%. An additional 2.5% cess was proposed in the form of Agricultural and Infrastructure Development Cess(AIDC). After the announcement, gold futures on MCX slumped 3% or about ₹1,500 per 10 gram.

The decrease in gold prices has seen a lot of accumulation happening which helped in price recovery. Prices are up by almost Rs 2000-Rs 2500 from the low of Rs. 45,500 per 10 gm. The second wave of COVID-19, rising lockdown measures, uncertainties over vaccines, rising debt, and liquidity are supporting factors of gold price rise. A question remains, should you invest in bonds over gold? The US 10-year bond yield has been at its peak recently, bond prices are low, yields are high. One can either choose to profit from the volatility of the gold market or choose to invest in a rather consistent instrument like bonds. Investors should watch out for inflation numbers, long-term bond yields, US Fed Reserve Rate, and other global factors that might affect the spot price of gold. 

So the next time you see a family member wondering why gold prices are moving like it is, you will know the answer!

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Market News

Gold Prices Surge to All-time High!

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Gold prices today have risen to their highest in 9 years crossing the Rs. 50,000 mark. Gold has been a safe-haven asset for centuries. Whenever there is uncertainty or volatility in the market people tend to invest in more in Gold than any other asset. Along with Gold other precious metals like Platinum and Sliver saw an increase in respective prices. US gold futures rose 0.4 per cent to $1,823.80. Moreover, Holdings of SPDR Gold Trust(Largest Gold ETF in the world) rose 0.4% to 1,211.86 tonnes on Monday.

What is the cause for the surge in Gold prices?

  • The INR against the USD currency has depreciated by 7% since September 2019, this has pushed the gold prices higher especially in the Indian market
  • The RBI has cut its policy rates by almost 75% aiming to inject liquidity in the economy. Any rise in the amount of liquid currency in the system pushes the Gold price higher.
  • Additionally, The US equity markets fell by almost 40% which forced the US Fed to announce a record amount of liquidity injection and bond-buying programme of more than $3 trillion.
  • The rising number of Coronavirus cases and uncertainty about the vaccine has caused investors to invest in safe-haven assets like Gold.
  • Countries around the world have announced policy rate cuts and stimulus packages which could give rise to inflation and therefore pump Gold prices.

According to Financial Express, Global gold-backed ETFs and similar products added 298 tonnes, or net inflows of $23 billion, across all regions in the first quarter of 2020—the highest quarterly amount ever in absolute US dollar terms and the largest tonnage additions since 2016, as per the WGC.

Gold will continue to play its role as an eminent portfolio diversifier and a store of value during economic uncertainty it would be best to invest in it strategically. For now its best to keep a keen eye on policy changes, rate cuts or sale of reserves by major central banks to track Gold prices.