Golden Time to Invest in Gold Bonds
All that Not Glitters are also Gold. :)
Gold is one of the precious metal, It is as precious as
time. We compare phases as golden time or golden age etc. Gold trading has a
long history. Discovered in ancient times, gold has been a sign of wealth and
social position in many societies since it was first used as currency. Today
gold is still an important material of trade and business.
Gold coins as medium of exchange was since from ancient
times of India. They circulated as currency in many countries before the
introduction of paper money. Once paper money was introduced, currencies still
maintained an explicit link to gold (the paper being exchangeable for gold on
demand).
Sir Isaac Newton compared the value of gold to silver in his
system of measurement. Some people think that this was when the gold standard
was first set.
Countries value gold as a measure of wealth and a base of
exchange. Individuals value gold as insurance because paper money is not always
certain. Gold continues to have effects on world financial markets today and
will into the future.
In India People buy gold for a variety of reasons such as
for its auspicious sentiment; as an investment (Gold continues to command long
term value, a tag for being a safe haven); hedge against inflation; asset
allocation, etc. Gold also carries a high perceived value and a high emotional
quotient. It reinforces closeness of relationships. Gold coins in smaller
denominations are also considered apt for corporate gifting and rewards for
contests or for commemorative giveaways.
Many people think
that Indians are gold crazy.
Though this statement cannot be completely negative, the
truth is that Gold has always had a special significance for all ages. The old
adage - all that glitters is not gold, also in a way underlines the importance
accorded to Gold. Gold lends itself as a
commemorative medium to various engagements like golden anniversaries, golden
jubilee, gold medals, gold credit card etc. In India people buy gold anytime
and not only during special occasions like weddings, festivals or special
events. Gold is also offered to Indian deities
Main reasons why
Indians are interested in gold :
·
Gold is considered an equivalent for liquid
cash: Gold is highly liquid and portable as a Security or Asset. It can be
converted to cash anytime when an emergency arises and is considered a friend
in need.
·
Gold is considered as a Status Symbol:
Especially in India gold symbolizes wealth. In Indian weddings the Gold brought
by the bride shows her family's status and wealth. It is believed that a bride
wearing 24k gold on their wedding to bring luck and happiness throughout the
married life.
·
Gold is a very good investment: Gold is an asset
which has consistently increased in value and thereby considered as a safe and
secure investment. In the last five years Gold has delivered over 20% YOY
return. It is considered an effective diversifier which helps to reduce
portfolio risk.
·
Gold is considered as gift item: It's precious
and worthy across all cultures and times. The gold jewelry is given as gifts
during weddings, festivals and other special occasions.
·
Gold has great religious significance: Gold is
the symbol of the Hindu Goddess Lakshmi and considered highly auspicious. Gold
is brought or presented on festivals like Dhanteras and Akshaya Tritiya. Toe
rings are never made of gold as it represents the goddess of wealth and should
not be soiled by touching a human's feet.
·
Great Ornamental Value: Who can resist gold
ornaments? Women of every age and time have always loved wearing gold
ornaments. Moreover, Gold ornaments are never out of fashion. It also may be
remembered that wedding rings are also traditionally made of gold to mark a
long lasting relationship.
·
Great value as Heirloom: Gold jewelry is
something which can be passed down from one generation to the other as
ancestral property. This is why people say Gold is forever! Planning for gold
investment for your children’s marriage well in advance can be a very effective
strategy since it will save valuable time and money during the marriage in
future. Given that gold prices always tend to grow, slow, steady, and planned
accumulation of gold for your children’s marriage will stand you in good stead.
Impact of Gold
Imports on Indian economy:
Oil and Gold are top imports on this list. One can say that,
Oil can be stated as necessity of the Indian economy. Gold on other hand has no
such importance. It’s just Indian mentality that Gold investment is good as it
gives higher returns and is less risky.
An increase in Current Account Deficit: As we know, gold
bullion and raw form is used for minting currency. The more country purchases
gold, the more the reserves dry up leaving the metal scarce in government's
treasury. This needs to be noted from the fact that any slump/hike in sensex is
accompanied sooner or later by change in price of gold.
Drain foreign reserve: This is interlinked with the CAD
mentioned in point 1. Much like crude oil, rightly called black gold, a country
has to dish out money in USD to procure the commodity.
The current account deficit CAD is a measure of the value of
goods and services a country imports exceeding the value of goods and services
it exports. The sharp decline in global crude oil prices has come as a boon for
the government and has enabled it to slash its fuel subsidy bill significantly
and boosted finances at a time when the economy is passing through a sluggish
phase. Both oil and gold have enabled the government to show a better fiscal
picture.
India had imported 199 tonnes of gold in the first six
months of 2016, which is a 50.49% drop compared with 402 tonnes imported in the
corresponding period last year.
Sovereign Gold Bond
Scheme
Since then, the government has taken a series of steps to
mobilize gold and keep the CAD within manageable limits.
The Bonds are issued by the Reserve Bank of India on behalf
of the Government of India.
Sovereign gold bonds (SGBs) are government securities
denominated in grams of gold. They are substitutes for holding physical gold
where the issue and redemption is carried out in cash but indexed to the value
of the underlying gold. The bond is issued by the Reserve Bank on behalf of the
Government of India.
The gold monetization scheme aims to mobilize around 20,000 tons
of idle gold lying in the country by encouraging institutions and individuals
to deposit it with the government for interest. Finance Ministry data shows
that 1,467 kg of gold has been deposited by just 86 depositors since the launch
of the monetization scheme.
As investors will get returns that are linked to gold price,
the scheme is expected to offer the same benefits as physical gold. They can be
used as collateral for loans and can be sold or traded on stock exchanges.
BENEFITS
·
The Sovereign Gold Bonds will be available both
in demat and paper form.
·
The tenor of the bond is for a minimum of 8
years with option to exit in 5th, 6th and 7th years.
·
They will carry sovereign guarantee both on the
capital invested and the interest.
·
Bonds can be used as collateral for loans.
·
Bonds would be allowed to be traded on exchanges
to allow early exits for investors who may so desire.
·
Further, bonds would be allowed to be traded on
exchanges to allow early exits for investors who may so desire.
·
Capital gain tax arising on redemption of SGB to
an individual has been exempted. The indexation benefit will be provided to
LTCG arising to any person on transfer of bonds. The department of revenue has
said that they will consider indexation benefit if bond is transferred before
maturity and complete capital gains tax exemption at the time of redemption.
HOW CAN I BUY IT?
Sovereign Gold Bonds will be issued on payment of rupees and
denominated in grams of gold. Minimum investment in the bond shall be 1 grams.
The bonds can be bought by Indian residents or entities and is capped at 500
grams.
References :
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