Month: August 2021

How a retired professional can provide for his family and also give back to society

Personal Finance

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Chandrasekar (65) retired three years back. He wanted to review his financial position because of his changed needs and new priorities. He was also considering transfer of wealth to the next generation.

He and his wife Rama (61) live in Chennai. As a finance professional, he has good understanding of various products and the risks associated with such products. As with many of us, the Covid-19 pandemic has spurred him to be sensitive to unforeseen challenges.

His assets comprised financial assets and real estate. His total net worth was estimated to be ₹15 crore excluding self-occupied house in Chennai. He is physically active and reasonably healthy. His wife is ageing and is on regular medication for a long-term ailment.

Defined financial goals

Basis his changed priorities of increasing liquidity, seeking regular income and wishing to bequeath assets to his son and daughter, we helped him define his financial goals as below:

1. Set up a emergency fund to cover 12 months of living expenses in fixed deposits

2. A medical fund for a sum of ₹50 lakh with enough liquidity through staggered fixed deposits and liquid funds

3. Automate his charity needs with an endowment fund of ₹1 crore. Income earned from this endowment fund will be spent on the education needs of deserving students and families. This was made possible with a trust structure.

4. He was advised to use different structures to transfer his wealth over a period and prepare a will accordingly.

5. Towards ensuring a regular income from his assets for the family expenses, we advised him to segregate his expenses into 2-3 buckets. First one to cover his living costs, which also included support staff and emergency care expenses. He estimated the amount to be ₹75,000 per month. Second was to spend for his luxury needs (travel and appliance purchases), estimated at ₹5 lakh per annum. Third one would cover social needs such as meeting and gifting friends and family. He estimated this to be at ₹3 lakh.

He preferred a conservative approach for his own needs and requirements but wanted to allocate reasonable growth assets for his other needs such as charity, and transfer of wealth to children. . For self, he favoured fixed deposits and safe investment avenues though he might be paying higher taxes, with safety and liquidity being top criteria for choosing an investment avenue.

Review and recommendations

1. We advised Chandrasekar to reserve ₹9 lakh in FDs with auto renewal option in the bank closest to his residence, towards his Emergency Fund.

2. To create a medical fund of ₹25 lakh each for him and his wife, again in FDs in a staggered way.

3. His retirement living expenses were at ₹75,000 per month. Estimated inflation would be around 7 per cent and life expectancy for him and his wife was taken as 100. Post tax return from investment products was estimated at 6.5 per cent per annum. Though he was aware of the burden of taxes and the impact on returns, he wanted to ensure he had enough funds to manage his expenses in the safest possible way.

He was advised to reserve ₹3.84 crore and the basket of products were selected from Government Bonds to annuity plans. The product basket ensured that it required minimal management from him or his spouse.

4. To cover his living expenses fund, we advised him to retain approximately 50 per cent of the corpus to wealth fund for his needs. This was invested in a balanced portfolio with 50 per cent in index funds and 50 per cent in fixed income securities.

5. He wanted to withdraw ₹8 lakh every year for the next 20 years and the corpus needed for the same was ₹1.6 crore.

Any income received from this corpus could be used as per inflationary additions towards his needs or he had the option of transferring the excess to charity.

6. Charitable trust was created with identified beneficiaries and the charity automated with minimal human intervention.

7. Recommended a combination of will and private trust and other alternate options to transfer wealth to his children in case of any unfortunate event. Enough care has been taken to protect his wife’s interest in managing her lifestyle and expenses for her life time.

The pandemic has induced fear in senior citizens about handling money, health needs and wealth transfer.

This gentleman, with hands-on experience in various financial products, opened many doors with much clarity.

Here was one who went the extra mile to ensure personal stability, and well-being of those around him. Also, seeking the help of professionals adds value to what you want to accomplish.

The writer, founder of Chamomile Investment Consultants in Chennai, is an investment advisor registered with SEBI

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Know the difference between exemption and deduction

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A coffee time conversation between two colleagues leads to an interesting explainer on tax jargon.

Tina: Problems with the new IT website seem to be never ending. Have you filed your tax returns?

Vina: No Tina. I seem to have missed the receipt for my insurance premium payment. That could help me with some exemption in income.

Tina: Er.. exemption? You mean deduction?

Vina: Yeah potato, po-tah-toh! Aren’t they the same thing said differently?

Tina: No. Even though both the terms do ultimately mean a lower tax outgo for you, they are different.

Vina: Why? What is the difference?

Tina: Exemptions deal with incomes or rather sources of incomes that are not required to be considered while calculating your taxable income. These excluded incomes may be exempt either entirely or partially depending upon the provisions in the Income Tax Act.

For instance, agricultural income and sums received under a life insurance policy (subject to some conditions) are examples of incomes that are completely exempt from income tax. On the other hand, exemption of long-term capital gains on listed equity shares for an amount of up to ₹1 lakh a year is an example of partially exempt income. Section 10 of the Income Tax Act specifies many other exempt incomes.

Vina: What are deductions then?

Tina: Deductions, as the name suggests, are amounts that are allowed to be deducted or reduced from your gross taxable income. Well-known examples of these are the deductions laid out in Chapter VI A of the Income Tax Act. These deductions generally aim to promote the habit of saving and investment in people. Take for instance, deductions under Section 80 C of up to ₹1.5 lakh a year. One can claim them on making investments in various instruments such as Equity Linked Savings Schemes (ELSS), Public Provident Fund and NPS, or through expenses such as repayment of home loan principal. Also, deduction is allowed for health insurance premium payment under Section 80D.

There are certain other deductions too. Take, for instance, the 30 per cent deduction on income from house property, or the standard deduction of ₹50,000 a year from your salary income. Donations to certain specified funds, interest on home and education loans etc. can also be claimed as deductions from your taxable income.

Vina: Okay, I get it now. So, the difference between exemptions and deductions is that the Income tax Act exempts certain incomes- either entirely or partially – from the calculation of total income to be considered for taxation. Hence, one need not include them in the gross taxable income. On the other hand, deductions must be claimed against (or deducted from) your total taxable income.

Tina: Yes. That’s simply put!

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What you need to know before buying a heart cover

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Heart-related ailments are increasing every year across countries including India. Pollution, smoking, diabetes and lifestyle-related changes are the key reasons for heart-related ailments across age groups. According to the World Heart Federation, cardiovascular-related ailments results in 18.6 million deaths a year.

To address specific disease-related medical expenses, a few insurers including Care Health, Star Health, Future Generali and ICICI Pru Life have come out with standalone cardiac covers. While your regular health policy also covers you for cardiac ailments and other critical illnesses, should you go for such a cover?

Read more: All you need to know about critical illness insurance

Plans for existing cardiac ailments

Insurers offer two kinds of products to cover against cardiac-related ailments.

One type is for those who have already been diagnosed with cardiac ailments or disorders and possibly have undergone surgeries for it. These types of plans are usually offered by health insurers such as Star Health (Star Cardiac Care) and Care Health (Care Heart). So unlike regular health plans, where those with cardiac ailments have to undergo a pre-existing or disease specific waiting period, here they get covered from day one (post the initial waiting period).

Note that cardiac specific plans too come with a waiting period. As a policyholder, you have to wait for 30 days (initial waiting period) after the commencement of the policy before the cover starts. You will also have to undergo pre-existing diseases waiting period, for those ailments other than cardiac related, such as cataract, bronchitis, and varicose veins, of anywhere between 2 to 4 years. Similarly, there is a waiting period for specific diseases such as all types of cancers, kidney and liver failure and retinal disorders, which is usually around two years.

These cardiac plans work as an indemnity policy where the hospitalisation expenses are covered. For instance, Care Heart Plan from Care Health covers hospitalisation expenses and pre and post hospitalisation expenses. The plan also covers domiciliary hospitalisation and offers restoration benefit, no claim bonus benefit, and health check-up.

Benefit policies

The other kind of health policy that specifically covers against cardiac ailments is the benefit policy, where the insurer will make a lumpsum payment only at the time of diagnosis after which the policy terminates. The policyholder can use the money for medical or non-medical expenses without any restriction. These policies are suitable for those who are likely to suffer from such ailments in future. A few of the policies offered include ICICI Pru Heart and Cancer Protect, HDFC Life Cardiac Care and Future Generali’s Heart and Health plan

The list of cardiac conditions covered varies with insurers. For instance, in case of Heart and Health plan from Future Generali (where you opt for the Heart plan option), you are covered against 18 heart-related conditions (both minor and major) including angioplasty, open chest bag, cardiac arrest and heart transplant.

A few insurers make the lumpsum payment upon diagnosis, depending on the severity of conditions. For instance, in case of HDFC Life’s Cardiac plan, 25 per cent of sum insured (SI) is paid in case of minor conditions which include angioplasty, minimally invasive surgery of aorta and insertion of pacemaker. The plan pays 100 per cent in cases like heart transplant, open chest coronary artery bypass graft and the like.

The waiting period usually ranges between 90 days to 180 days. Do keep in mind that the benefit from the policy will be payable only if the insured person survives for a specific period post the diagnosis, known as the survival period, which usually ranges from 7 to 30 days. These products also come with similar benefits such as SI restoration, no claim bonus and portability.

Our take

If you are already suffering from heart-related ailments, you can consider the plans that offer coverage without pre-existing condition waiting period. But do keep in mind that, these plans come with limits on sum insured. For instance, the SI options available with Star Cardiac Plan are up to ₹15 lakh, while the maximum SI offered in Care Heart is ₹10 lakh. They also come with sub-limits and co-pay. For instance, Care Heart has a sub-limit on room rent of 1 per cent per day up to SI and co-pay of 20 per cent .

If you have a family history of heart ailments or any other critical illnesses, you may be at risk of contracting one. So in such cases, it makes sense to go for cardiac benefit policies (which is taken before you get any heart related ailments) or critical illness (CI) policies. These policies also offer higher SI options.

While you can consider standalone cardiac plans (benefit plans), there are products in the market that covers other critical illnesses too. For instance, Bajaj Allianz General’s Criti-Care plan covers a wide range of 43 critical illnesses and the plan offers five options – cancer care, cardiovascular care, kidney care, neuro care and transplants and sensory organ care – for policyholder to choose from (one or all) depending on the need. Note that, it is always recommended to go for CI plans (cardiac or comprehensive) over and above your base health insurance policy.

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How safe deposit lockers have become safer

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Following the Supreme Court’s directions in February 2021, the Reserve Bank of India (RBI) recently came up with revised instructions for safe deposit locker services being offered by banks. The amended guidelines, which supersede the instructions issued in this regard in 2007, creates liability on banks, which now cannot claim ignorance of a locker’s contents.

The revised instructions will come into force with effect from January 1, 2022 and will be applicable to both new and existing lockers. In light of the proposed changes, we help you understand how safe deposit locker services work.

What is the big change in the latest RBI guidelines vs the 2007 instructions?

The apex court, in February 2021, observed that banks cannot leave the customers in the lurch on loss of/damage to content merely by claiming ignorance of the contents of the lockers. Thus, the new RBI guidelines create a liability on banks under certain circumstances.

When there is loss of contents due to theft, fire, damage to building, negligence or due to fraud committed by its employee(s), the bank will be liable be for an amount equivalent to one hundred times the prevailing annual rent of the safe deposit locker.

However, note that the bank shall not be liable for any damage and/or loss of contents of locker arising from natural calamities or Acts of God such as earthquake, floods, lightning and thunderstorm or any act that is attributable to the sole fault or negligence of the customer. Banks are just expected to exercise appropriate care to their locker systems to protect their premises from such catastrophes.

Further, the new guidelines specifically mentioned that banks cannot, directly or indirectly, offer any insurance product to its customers for insurance of locker contents. Be aware that banks do not keep a record of the contents of the locker, and thus they would not be under any liability to insure the contents of the locker against any risk.

What if I don’t pay the locker rent?

Banks have the discretion to break open any locker following due procedure if the rent has not been paid by the customer for three years in a row.

The new RBI guidelines are vocal about this too following the February 2021 SC judgement that the customers have to be informed before a bank breaks open a locker.

As per the new instructions, the bank shall ensure that it notifies the existing locker-hirer prior to any changes in the allotment and give him/her reasonable opportunity to withdraw the articles deposited by him/her.

After breaking open of locker, the contents shall be kept in sealed envelope with detailed inventory until the customer claims it.

While returning the contents of the locker, the bank shall obtain acknowledgement of the customer on the inventory list to avoid any dispute in future.

Who can get a locker and how does locker allotment work?

You can get a safe-locker facility for your precious belongings (except illegal or any hazardous substance), if you are a KYC-compliant customer with a bank. Even if there is no prior relationship with the bank, you may be given the facility subject to KYC compliance.

Banks must maintain a branch-wise list of vacant lockers, as per the new guidelines. SBI Bank seems to have already offering this service.

One can access SBI’s online locker enquiry at https://tinyurl.com/sbilocker, based on selection of state, district and pin code.

To ensure transparency, banks acknowledge all applications received for allotment of locker and give a wait list number, if there is no availability. At the time of allotment of the locker, the bank will enter into an agreement with the customer on a stamped paper.

As per the current guidelines, banks shall display the model locker agreement on the their website along with all the terms & conditions and the standard operating procedures (SOPs) on various aspects for public viewing.

Can the bank ask me for a term-deposit to avail locker services?

Banks are allowed to obtain a term-deposit, at the time of allotment, to ensure prompt payment of locker rent. Note that the term-deposit requested by banks cannot exceed three years’ rent and the charges for breaking open the locker in case of such eventuality. Banks, however, cannot insist on such term deposits from the existing locker holders or those who have a satisfactory operative account.

Is there a nomination facility for locker services?

Yes. The banks shall offer nomination facility in case of safe deposit lockers as well. You may have to go through the bank’s policy to understand the policy for nomination and protection against notice of claims of other persons. To avoid inconvenience and undue hardship to legal heirs or the claimant, the new guidelines by RBI mentioned the time limit before which settlement of claims to be made to nominee in respect of deceased. It says that the claims are to be settled within a period not exceeding 15 days from the date of receipt of the claim, provided, proof of death of the depositor and suitable identification of the claimant(s) with reference to nomination are submitted.

How secure will my belongings be?

Banks are liable to exercise due care and necessary precaution for the protection of the lockers provided to the customer. The new guidelines further stress on this point as the RBI specifically ask banks to take required steps to ensure that the area in which the locker facility is housed is properly secured to prevent break-ins as well as damage from rain or fire.

In case any customer has complained to the bank that his/her locker is opened without her authority, or any theft or security breach is noticed/observed, the bank is also liable to preserve the CCTV recording till the police investigation is completed and the dispute is settled.

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Should you invest in the latest Sovereign Gold Bond issue?

Personal Finance

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The latest Sovereign Gold Bond Scheme 2021-22 – Series VI will be open for subscription from August 30 to September 3, 2021. The issue price is ₹4,732 per bond (equivalent to one gram of gold). Those applying online and paying digitally get a discount of ₹50 on the issue price.

SGBs can be bought from banks, designated post offices, stockbrokers and the NSE and the BSE.

Why invest

The latest SGB issue price of ₹4,732 is lower by ₹45 to ₹157 per bond than in the preceding five issues in 2021-22. The price is a simple average of the price of gold (999 purity) for the last three business days preceding the subscription period.

Gold prices have fallen around 13 per cent rice (in rupee terms) since the August 2020 high.

Those with a long-term investment horizon can consider buying SGBs in this issue to add to their long-term gold allocation. As of now, no further SGB issues have been announced for this year.

Gold does well when other asset classes such as equity fare poorly and can form part of your portfolio (around 10 per cent) as a hedge against underperformance in other assets.

Given that returns from gold can be lumpy – long periods of poor return followed by short periods of high return – having a longer holding period helps. Over the last 30 years, gold has offered an average 5-year return (CAGR) of 9.4 per cent with the possibility of these returns being negative 13 per cent of the time.

Over the same period, the average 7-year gold return (CAGR) has been 9.7 per cent with the possibility of negative returns being only 1 per cent.

However, investors are advised to keep some powder dry for possible future tranches, which may come at lower prices.

Fears of the US Fed unwinding its ultra-loose monetary policy to rein in inflation have been weighing on gold.

The brass tacks

You can buy a minimum of 1 gram and up to a maximum of 4 kilograms during a financial year.

The limit includes bonds bought in the primary issues as well as those from the secondary market.

The investment tenure of these bonds is eight years. However, early redemption with the RBI is allowed from the fifth year. Both interest and redemption proceeds will be credited to the bank account provided by you at the time of buying the bond.

For this, you can approach the concerned bank or whoever you bought them from, 30 days before the coupon payment date (half-yearly). Request for premature redemption will be accepted only if you approach the concerned bank/post office at least 1 day before the coupon payment date. While you can also sell the SGBs in the secondary market any time before maturity, the lack of adequate trading volumes can be an impediment.

If interested in a more liquid option, consider gold ETFs that can be bought/sold anytime. However, gold ETFs involve an expense ratio while there is no purchase cost for SGBs. ETFs are also subject to capital gains tax, while capital gains on SGBs are tax exempt in certain cases.

Returns and taxation

Apart from the possibility of capital gains (appreciation in gold price between the time of purchase and redemption), SGBs offer investors interest of 2.5 per cent per annum (paid semi-annually) on their initial investment. The interest income is taxed at your relevant slab rate.

If you hold the bonds until maturity (eight years), then the capital gain, if any, is exempt from tax. Capital gains on SGBs sold prematurely in the secondary market are taxed at an individual’s income tax slab rate, if held for 36 months or less, and at 20 per cent with indexation benefit if held for more than 36 months.

This is a free article from the BusinessLine premium Portfolio segment. For more such content, please subscribe to The Hindu BusinessLine online.)

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Reserve Bank of India – Press Releases

Press Releases

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The Reserve Bank of India has been regularly conducting Consumer Confidence Survey (CCS). The September 2021 round of the survey is now being launched. The survey seeks qualitative responses from households, regarding their sentiments on general economic situation, employment scenario, price level, households’ income and spending. The survey is conducted regularly in 13 cities, viz., Ahmedabad, Bengaluru, Bhopal, Chennai, Delhi, Guwahati, Hyderabad, Jaipur, Kolkata, Lucknow, Mumbai, Patna and Thiruvananthapuram. The survey covers approximately 5,400 respondents across 13 cities. The results of this survey provide useful inputs for monetary policy.

The agency, M/s Hansa Research Group Pvt. Ltd., Mumbai has been engaged to conduct the survey of this round on behalf of the Reserve Bank of India through face-to-face as well as telephonically, in view of the phase-wise resumption of activities. For this purpose, the selected households will be approached by the agency and they are requested to provide their responses. Other individuals, who are not approached by the agency, can also participate in this survey by providing their responses using the linked survey schedule. The filled in survey schedule may be e-mailed as per the contact details given below. In case of any query/clarification, kindly contact at the following address:

The Director,
Division of Household Surveys,
Department of Statistics and Information Management,
Reserve Bank of India,
C-8, 2nd Floor,
Bandra-Kurla Complex, Bandra (East),
Mumbai-400051;
Phone: 022-2657 8398, 022-2657 8332;
Please click here to send email.

(Yogesh Dayal)     
Chief General Manager

Press Release: 2021-2022/770

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Reserve Bank of India – Press Releases

Press Releases

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The Reserve Bank of India has been regularly conducting Inflation Expectations Survey of Households (IESH). The September 2021 round of the survey is now being launched. The survey aims at capturing subjective assessments on price movements and inflation, of approximately 6,000 households, based on their individual consumption baskets, across 18 cities, viz., Ahmedabad, Bengaluru, Bhopal, Bhubaneswar, Chandigarh, Chennai, Delhi, Guwahati, Hyderabad, Jaipur, Kolkata, Lucknow, Mumbai, Nagpur, Patna, Raipur, Ranchi and Thiruvananthapuram. The survey seeks qualitative responses from households on price changes (general prices as well as prices of specific product groups) in the three months ahead as well as in the one year ahead period and quantitative responses on current, three months ahead and one year ahead inflation rates. The results of this survey provide useful inputs for monetary policy.

The agency, M/s Hansa Research Group Pvt. Ltd., Mumbai has been engaged to conduct the survey of this round on behalf of the Reserve Bank of India through face-to-face as well as telephonically, in view of the phase-wise resumption of activities. For this purpose, the selected households will be approached by the agency and they are requested to provide their response. Other individuals, who are not approached by the agency can also participate in this survey by providing their responses using the linked survey schedule. The filled in survey schedule may be e-mailed as per contact details given below. In case of any query/clarification, kindly contact at the following address:

The Director,
Division of Household Surveys,
Department of Statistics and Information Management,
Reserve Bank of India,
C-8, 2nd Floor,
Bandra-Kurla Complex, Bandra (East),
Mumbai-400051;
Phone: 022-2657 8398, 022-2657 8520;
Please click here to send email.

(Yogesh Dayal)     
Chief General Manager

Press Release: 2021-2022/771

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Government extends tenure of UCO Bank’s MD & CEO for 2 years, BFSI News, ET BFSI

Banking & Finance

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State-owned UCO Bank on Saturday said the government has extended the term of its MD and CEO Atul Kumar Goel for two years.

The central government, through a notification dated August 26, extended the term of office of Atul Kumar Goel as UCO Bank’s managing director and chief executive officer (MD & CEO), for a period of two years or until further orders, whichever is earlier, the bank said in a regulatory filing.

Goel’s current term was to expire on November 1, 2021.

On Friday, Punjab National Bank and Bank of Maharashtra had also informed about extensions given to their MD & CEOs.

The government has also extended the terms of two executive directors each in Punjab National Bank and Union Bank of India, and one executive director of Central Bank of India.

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2 Stocks To Buy For Gains Of 38% & 33% From The Auto And Energy Space

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Buy LG Balakrishnan stock, says CD Equisearch

CD Equisearch has a “buy” call on the stock of the auto ancillary player for a price target of Rs 565, as against the current market price of Rs 409, thus implying an upside of almost 38% from the current levels. L G Balakrishnan manufactures roller chains and undertakes metal forming, including warm & cold forging, fine blanking and machined parts.

The stock currently trades at 7.8 times FY22e EPS of Rs 52.51 and 6.5x FY23e EPS of Rs 62.83. Post tax earning is projected to grow by over 27% CAGR over the next two years on stable sales growth (sales estimated to grow by 11% this fiscal and by 9.4% in FY23.

“LG Balakrishnan’s competitive advantage in terms of product quality and market reach would enable it to further penetrate in the propitious replacement market. Risks in terms of rise in Covid 19 cases cannot be ignored. Weighing odds, we maintain our buy recommendation on the stock with revised target of Rs 565 (previous target: Rs 276) based on 9 times FY23 estimated earnings over a period of 6-9 months,” the brokerage has said.

Anmol India

Anmol India

Khambatta Securities has set a price target of Rs 255 on the stock of Anmol India, as against the current market price of Rs 191, which implies gains of 33%.

The company is a bulk supplier of imported coal, providing end-to-end coal supply chain management solutions. The company specialises in supplying high GCV coal, USA coal, Indonesian coal, Saudi pet coke and USA pet coke, commanding a sizeable 16% share of the USA coal market in India

“A growing and industrialising economy along with increasing urbanisation is expected to drive up energy use as coal is seen to remain India’s energy mainstay for next 30 years. India does not produce adequate quantity of coal to meet the domestic demand while various types, grades and varieties of coal are required for different end uses. As a result, coal imports are expected to remain strong going forward,” Khambatta Securities has said in its report.

“We expect Anmol to register healthy growth in sales and profits going forward, driven by high demand for imported coal as the company expands its product portfolio and geography of operations. At current levels, the Anmol stock trades at an attractive 8.8 times FY24E EPS. Assigning a target P/E multiple of 13 times FY23E EPS, we value Anmol at Rs 255, informing a BUY rating with an upside of 48%,” the brokerage has further added.

Disclaimer

Disclaimer

The above stocks are based on the report of two brokerages mentioned above. Investing in stocks is risky and investors should do their own research. The author, the brokerage firms or Greynium Information Technologies are not responsible for any losses incurred due to a decision based on the above article. Investors should hence exercise due caution as are at record peaks. Please consult a professional advisor



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Will Gold Prices Fall Soon As US Fed Announces Tapering Timeline?

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Personal Finance

oi-Kuntala Sarkar

|

Gold prices in India depend on the international price trends, measuring factors such as US dollar index and US interest rates. Yesterday, on Friday, US Federal Reserve (Fed) Chair Jerome Powell said that they might start to reduce the monthly bond purchases programme, later this year, but will not rush to hike the interest rates now. As gold is traded against the US dollar, this announcement is going to leave significant impacts on the yellow metal’s prices. When the US Fed will start tapering later this year, it is expected that the interest rate might increase after the tapering, that is in early 2022. Hence, the end of 2021 is no more anticipating a stiff rise in gold rates, as expected before.

Will Gold Prices Fall Soon As US Fed Announces Tapering Timeline?

Why the prices might drop?

Spot gold prices till Aug 27, in the international market, was standing at a $1816.80/oz level and COMEX price was quoted at a $1,819.5s range. In India, 22 carat gold was last quoted at Rs. 4662 per gram. As the Fed Chair Powell announced the possible tapering time, the small rally in gold could end. A similar trend can be found with silver. Spot gold and silver prices might perform moderately, but future rates will be affected. With an interest rate hike, the government bond yield will rise and investors will focus on the US dollar, in addition to government bonds. This will eventually shift their concentration from gold, dragging the precious metal’s prices down, globally.

Fed’s quantitative easing (QE) policy

Due to the pandemic, the US Fed earlier was maintaining a position of quantitative easing (QE) with a US$120 billion-a-month bond-buying programme, to flood the economy with liquidity. But now, as the labour market and housing market data show the economy is gaining pace, which is giving the Fed strength to taper the asset-buying programme. The country’s labour market added 943,000 jobs in July, while the unemployment rate fell to 5.4%. July, month-on-month housing sales data showed positive results, above market expectations. Now, the Fed is ready to focus on its currency index to grow, which will drop down gold rates.

India is one of the largest consumers of gold, globally, and the RBI has purchased a record amount of gold in the recent past to store in its reserve. For the common people, to buy gold, they have to pay the basic gold prices as the Indian Bullion Jewellers Association (IBJA) fixes daily, considering the global rates, along with additional GST. Indians have to pay import duty and cess as gold is mostly imported from foreign markets. As the prices are expected to fall in the international, this will drag down gold prices in India giving more scope to common people to buy the yellow metal. If the gold rates are falling now, an investor who is planning to stay put in the long term, should not worry. Gold always performs well in the long term. When the gold rates are down in the market, it is recommended to invest. Also, a 15-20% gold investment helps an investor to diversify the portfolio, thereby mitigating market risks and keeping a hedge against inflation.

Story first published: Saturday, August 28, 2021, 14:09 [IST]



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