Things to keep in mind while investing in Sovereign Gold Bonds

Things to keep in mind while investing in Sovereign Gold Bonds

As a principle of financial planning, investment in gold should be in the range of 5-10 per cent of one's financial portfolio.

Are you considering investing in the 7th Tranche of Sovereign Gold Bonds (SGBs) that are open for subscription till March 3? While investment experts have given a thumbs up to the bonds offering by the government as a good portfolio diversification tool, they also advise against going overboard on a single instrument.

“As a principle of financial planning, investment in gold should be in the range of minimum 5-10% of one's portfolio. For example, if total financial portfolio is worth Rs 1 crore then investment in gold (including SGBs) should be at least Rs 5 lakhs but not more than Rs 10 lakhs. We advise investors to invest in Sovereign Gold Bonds keeping this guideline in mind,” Anil Chopra, Group CEO & Director, Bajaj Capital told Moneycontrol.

Chopra has the following advice for prospective investors:

• If you prefer any-time liquidity then you should opt for demat option for the gold bonds, instead of physical option.

• You must either invest on a joint basis with your spouse or any other close family member or you should specify your nominee to avoid any complications in unfortunate event of death.

• Be prepared to hold the bonds for a long duration. Remember that investment in SGB is for a period of 8 years with minimum lock in of 5 years.

• Do not push your investment to the last moment, because you might end up missing the March 3 deadline.

• Be prepared for short-term volatility. In the short term, gold prices may fluctuate in a range-bound manner. However, over entire period of maturity of 8 years, gold is expected to give decent returns.

Aasif Hirani, Director, Tradebulls, reminds investors to keep capital gains tax incidence on the bonds. “If an individual redeems bonds before completion of 3 years, short term capital gain tax will have to be paid,” Hirani says. Interest on the bonds is also taxable.

He also points to lack of liquidity. “If individual wants to exit bonds before maturity date, the only option is to redeem them through NSE or BSE and there is lack of liquidity in SGB trading right now.”

While subscription will be open till March 3, the bonds will be issued on March 17. The SGB issue price has been set at Rs 2,893 per gram of gold and is being offered at Rs 50 per gram less than the nominal value.

Happy Investing

Source: Moneycontrol.com

Profit from India's growth, invest in SIPs, says Sunil Singhania

Profit from India's growth, invest in SIPs, says Sunil Singhania
From just Rs 4,000 crore per month, Sunil Singhania, CIO-Equity, Investment at Reliance Mutual Fund expects systematic investment plans to exceed USD 1-billion a month within the next year or two.

Investments in systematic investment plans (SIPs) have gathered steam lately and Sunil Singhania, CIO-Equity, Investment at Reliance Mutual Fund expects them to exceed USD 1-billion a month from around Rs 4,000 crore now.

It is painful to see foreign investors making money out of India's growth story, while Indians shy away from equities, he says. He advises retail investors to participate in India's growth and benefit from it by starting to invest, particularly via SIPs.

"We have reached USD 2 trillion in the last 67 years. We are very confident that this USD 2 trillion we will be USD 4 trillion in the next six-seven years," he says.

Ahead of a Friday event - Mutual Fund Day - by Reliance Mutual Fund and CNBC-TV18, Singhania talked about the importance of investing in mutual funds and the road to financial prosperity.

Singhania advises investors to invest in a fund after closely observing the consistency over a long-term period, and the track record of a fund manager.

His formula for healthy returns is to pick a few fund houses with good fund managers, and have confidence in the Indian economy and those fund managers to deliver returns.

"If you have 5 percent in equity and you make 100 percent and if you have 50 percent in equity you make 30 percent, I think that the second option will be much better," he says.

Happy Investing

Source: Moneycontrol.com

Should you repay your home loans now or go for investments?

Should you repay your home loans now or go for investments? 

The final decision will depend not only on the return numbers, but also the qualitative factors such as your mental setup, your financial needs and your current financial health. 

The economy is made up of several moving parts which impact each other in different ways. Intersperse this with your personal requirements, and it makes for multiple choices in decision making. Based on the choices you make, your finances and in turn your life goals will be impacted. So it is wise to make a decision looking at all relevant parameters. 

In the current scenario one question that many people would be grappling with would be the choice between investing into the equity market, buying a home or repaying home loans. As of now we are seeing a decrease in home loan rates and an upward trending equity market. If you have money in hand, what should you do, prepay a part of your outstanding loan or invest into equity or property? 

If you want to buy a new house for personal use, then it is more of an emotional decision, so you might as well go ahead in buy it, even if renting makes more sense than buying-mathematically speaking! When it comes to putting in money into a house as an investment, there are many factors you need to look into, including the opportunity cost. Buying a house means putting a lumpsum as down payment as well as a regular payout in EMI. The opportunity cost lies in whether you will get a better return if you invest the lumpsum and the EMI into another product versus return on your property investment after bearing the costs of interest and maintenance and adding rent if you get any. Besides, there is also the convenience factor to consider. 

Let us look at a scenario where you have an ongoing home loan and have some lumpsum money available. In such circumstances, should you choose to part-prepay your loan or invest the amount? Assuming the original loan was Rs.60 Lakh taken in Jan-2013 at the rate of 9.5 percent for 20 years and EMI of Rs.55,928 per month. 

Look at the table below, which shows the total interest you will pay and the date of completion of the loan in different scenarios. It is assumed that you will move your loan to the current interest rate of 8.6 percent. That itself will move the completion date of your loan down from Jan-2033 to May-2031. If you part prepay an amount of Rs.11,00,000 your loan will get over by Nov-2026.

Please note that the return figures are assumed and the calculations are not exact and are meant for ease of understanding the scenarios.


If you choose to invest the amount instead of pre-paying the loan, you could get a range of returns. I have analysed scenarios ranging from 8 percent to 15 percent return, assuming an investment in equity funds. I have also assumed that you will close the loan once the investment amount is equal to the outstanding loan. You can see that even at a pessimistic return of 8 percent you will be able to close the loan more or less at the same time as you will if you make the part pre-payment now. The difference being in the total amount of interest you will pay in both these scenarios.

The final decision will depend not only on the numbers as shown above, but also the following factors:

1. Your mental set-up. Will being debt free make you happy? Or you enjoy getting returns on leveraged investments? Your mental set-up will be the first point of decision.

2. What is your risk profile? Will you be able to live with the volatility of equity as an asset class, if the money is to be invested in equity? Your investment might fluctuate over time and might even show negative returns in some periods.

3. Job security: Will you be able to manage the EMI’s if there is a job loss? Is there an alternate income available (spouse’s income/rental etc) or are there sufficient funds for emergency that can help tide over the phase till you get your next job?

4. How prepared are you for your other financial goals? If you have a child’s higher education coming up in a few years, you might want to keep the funds invested in appropriate instruments rather than repaying the home loan.

5. What is your liquidity position? If you are asset rich but cash poor, you may want to consider improving your liquidity by investing the amount in debt instruments rather than repaying the loan.

After considering all the above factors, if you decide to just opt for the lower interest rate on the home loan, without making any part prepayment and invest the amount of Rs.11 lakh into equity funds, you stand a chance to make a corpus of about Rs.50 lakh to Rs.80 lakh (assuming a return range between 12 percent-15 percent) by the time your loan gets over in May-2031. This can be utilised for goals like education for children or your retirement.

If you realise that you need to have liquidity for short term, equity investment might not be a right choice for you. In such a case you may want to look at moving your home loan into a super-saver or smart home loan kind of structure where the spare funds can be held in the home loan account. This will reduce the interest on the home loan while providing you with liquidity at the same time, with a rate of return equivalent to the rate of the home loan. If you have a major goal coming up in less than five years, you may want to look at debt mutual funds for investing your money.

So you can see that it is not an answer that can be the same for everyone, it entirely depends on individual circumstances and should be dealt with accordingly.


Happy Investing
Source:Moneycontrol.com

Trump's speech promises what markets like: Predictability

Trump's speech promises what markets like: Predictability

Immigration, healthcare, tax cuts and revamping the military were the four key areas covered. There may have been a nationalist undertone, but there were no details furnished that should rattle financial markets.

The rhetoric of the US election campaign -- “America First” and “Making America Great” -- was intact but the fine print of Trump’s address to Congress suggests that his aggression is on the wane. There is a departure, admittedly subtle, from the rabble-rousing and campaign-like Inauguration Address that he delivered on January 20. Immigration, healthcare, tax cuts and revamping the military were the four key areas covered. There may have been a nationalist undertone, but there were no details furnished that should rattle financial markets.

So how should Indian markets read Trump’s address?

With some relief. It is ‘mildly positive’ and here’s why:

President Trump, while pledging his commitment to bring back millions of jobs to America, touched upon “reforming the system of legal immigration”. He called for adopting a "merit-based system" for immigration, saying "it will save countless dollars, raise workers' wages and help struggling families." He touched upon the need to switch away from lower-skilled immigration and adopt a merit-based system, adding that Republicans and Democrats could work together to achieve immigration reform.

This allays a key concern among IT companies that this isn’t a blanket ban on foreign workers. Exporting low-skilled workers wasn’t an option for Indian IT companies any more due to the changing technology landscape. If Indian companies continue to add ‘value’ to their clients, the business model will survive the much feared “Trump Effect”.

The other area that was highlighted was healthcare. While dumping his predecessor’s signature reform ‘Obamacare’, he stressed upon expanding choice, increasing access and lowering costs. There was no mention of the much-feared local sourcing of drugs that had kept many of our pharma companies on tenterhooks.

Trump’s reference to the “slow and burdensome approval process at the Food and Drug Administration” (USFDA) represents the shape of things to come – probably faster approval for the right kind of molecules. Here again, Indian pharmaceutical companies with strong product pipelines should weather the storm easily.

On the taxation front, he vowed "historic" reform to reduce the corporate tax rate to make US companies more globally competitive and promised "massive" tax relief for the middle class. But the speech fell short on details. Indian companies should take heart from his silence on the controversial border adjustment tax.

Finally, on the geopolitical front, he once again vowed to destroy the Islamic state, rebuild America’s military and hinted at a substantial increase in military budget. This, alongside his reiteration of a USD 1 trillion investment in infrastructure, financed through both public and private channels, had the predictable impact on the US dollar – the Dollar Index jumped 0.44 percent this morning.

The fiscal expansion in the US might add a further leg to the commodity rally. Emerging markets like India need to be watchful about the impact of the strength of dollar on flows, Current Account, Currency and finally on domestic rates.

Trump’s passing reference to China (no overt trade war) and no mention of Mexico paying for the wall in the South perhaps foreshadows the emergence of a new, more predictable avatar. Markets, ever wary of uncertainty, would like that.

Happy Investing

Source:Moneycontrol.com