Wednesday, December 7, 2016

What are your options if the government puts a limit on gold holding?

 Courtesy : Econoomic Times

The market is rife with rumours that the government might take radical measures to unearth unaccounted wealth in the form of gold. This has made consumers uncomfortable about buying physical gold. A portion of the demand is expected to shift to Sovereign Gold Bonds issued by the RBI. These bonds offer 2.5% interest per annum (payable half-yearly) and their price is linked to the prevailing market price of gold. The bonds are listed on the exchange, facilitating early exit for investors. They mature in eight years, with an exit option at the end of five years from the date of issue. Sovereign Gold Bonds are a superior option to physical gold because while investors are assured of the market value of gold at the time of maturity, they also get periodical interest income. What’s more, the capital gains are fully tax exempt if the bonds are held till maturity and the investor can claim indexation benefits if he exits after one year.

The Sovereign Gold Bonds have evoked good response. Investors have bought bonds worth 14,071 kg of gold amounting to Rs 4,027 crore till now. The latest tranche, which was issued at a Rs 50 per gram discount on the prevailing market price of gold, saw investors buy bonds worth roughly Rs 915 crore. Anil Chopra, Group CEO and Director, Bajaj Capital, asserts gold bonds are a better alternative to physical gold. “Gold bonds not only provide better tax efficiency if held till maturity, they also do not have problems regarding safety and purity as is the case with physical gold.” Tanwir Alam, Managing Director of Fincart, reckons gold bonds will be a good alternative to fixed deposits as interest rates are likely to dip.

However, if the government cuts the interest rate on gold bonds, they will lose some of their charm. Since these bonds are linked to gold prices, a sustained disinflationary environment globally would also impact their returns, says Alam.

Investors may be deterred by some niggling issues as well. The latest issue concluded on 2 November but customers have not yet received the bonds. This could put off some investors, feels Manoj Nagpal, CEO, Outlook Asia Capital. “A better mechanism needs to be put in place by the RBI for the credit of these instruments in a defined timeframe.” There are other issues as well. While these gold bonds can be used as collateral for loans, several banks are refusing to sanction loans against them, says Vikram Dalal, Managing Director, Synergee Capital.


Meanwhile, the government’s Gold Monetisation Scheme has evoked lukewarm response, with a total of 5,730 kg of gold mobilised under the scheme as on 14 November. The scheme allows individuals to earn interest on idle, unused stock of physical gold in the form of jewellery, bars or coins. Depositors can get back the gold in physical form or in Indian rupees at prevailing market value at time of redemption. There is no capital gains tax on the appreciation in the value of gold deposited, or on the interest earned from it. Yet, investors have kept away from the scheme. “There are only limited number of branches for assaying the gold and investors have no control on the purification and no clarity on grammage of gold they will get in return for the gold they deposit,” says Amol Joshi, Founder, PlanRupee Investment Services. Most individuals hold physical gold in the form of jewellery, where the purity of the gold is often suspect and there is a high incidence of making charges. This deters people from submitting their gold lest it is valued far lesser than they expect. Also, the emotional attachment to jewellery and its snob value prevents most from parting with it. Even if a limit is put on gold holdings, people are likely to stay away from this scheme.

28 comments :

  1. Sir, what is your view on Orient Green Power? Co has posted best results for Sept Quarter...is there a scope for turnaround?

    ReplyDelete
  2. sir what is your long term view on MAX Ventures and Industries Ltd

    ReplyDelete
    Replies
    1. The existing business is Cyclical in nature, but considering the pedigree of promoters we can't rule out the chance for adding new line of business in future and create wealth. Some patience may needed to hold for long term.

      Delete
  3. Dear VP Sir,

    Kindly share your view on borosil glass works and Navin Fluorine International at CMP.

    Thanks

    ReplyDelete
    Replies
    1. Borosil is a stock we already discussed around Rs.4000 level and prefer to hold now.

      Not tracking Navin

      Delete
  4. Hi VP,

    Can you pls share your views on Vidli Restaurant

    ReplyDelete
  5. Sir, u r views on dynemic products, and carnation industries

    ReplyDelete
  6. Sir whats your view of Cybertech Systems and Software?

    ReplyDelete
    Replies
    1. Of late,It seems promoters taking some serious efforts to revive the business.

      Delete
  7. Dear sir
    Please give your views on GP petroleum. Thank you.

    ReplyDelete
    Replies
    1. GP Petro (formerly SAH Petro) is one stock I suggested in the past @ Rs.27. Thereafter promoters changed . Margins are highly dependent on the movement of crude oil price ,hence keep watching that element and take a call.

      Delete
  8. Sir
    Your view on Old recommendation Bilcare

    ReplyDelete
    Replies
    1. Only 10-15% of company's business is coming from local market and balance from subsidiaries functioning abroad .Company published only the result of stand alone entity in last quarter , it is difficult to reach at a conclusion only on the basis of stand alone result. I hope things will improve , but it may take some time.

      Delete
  9. Sir whats your view of Shri Rama Multi?

    ReplyDelete
    Replies
    1. Seems after a long time promoters are taking this business seriously .keep a close watch.

      Delete
  10. Hi Sir.

    We feel like deserted when you are not giving suggestions or reply to comments for small investors. Please continue to guide us in the blog sir.
    Thank you

    ReplyDelete
  11. Hi VPsir , Ur view un TVS-Electronics business please

    ReplyDelete
  12. How wonderful those days were....we used to wait for new stocks from vp sir on regular intervals.....turn out to be a ray of hope to earn for small poor investors...Now, it seems something worth missing in our lives....

    ReplyDelete
  13. Sir, whats your view of Hindustan Foods?

    ReplyDelete
  14. sir, whats about SKM food products?? do you continue to hold??

    ReplyDelete
  15. Sir your views on Indian Acrylics ,

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  16. Sir, Are you still pessimistic about SKM egg products at the CMP around 50?

    ReplyDelete
  17. Hell0 VP SIR,
    PLS SUGGEST ABOUT ALLIED COMPUTER, ANKIT METAL, MEGHMANI ORGANICS

    ReplyDelete

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