Various Options Available For Investment in Gold

Gold is always gold. Investment in gold has given better returns against inflation and on long tenure. Gold can be used as hedge against inflation. There are various options available for Investment in gold. Choose your options wisely to invest.

Gold Jewellery:

Indians are very fond of gold ornaments. Purchasing the gold is one form savings for Indian household. It is always preferred to hold gold instead of idle cash. But on purchase of gold ornaments individual has to forego making charges and wastage which adds to irrevocable cost.

Gold Coins and Bars:

Gold coins and bars can be purchased from jewellers , Banks, Non Banking Institutions. Gold coins will be of 24 carat and 99.9% purity and hallmarked as per BIS standards. Banks and financial institutions may charge premium for gold coins over the prevailing rates.MMTC is recognised by Government of India for minting and supply of gold coins.

Gold Savings Scheme:

Gold or jewellery Savings Scheme comes with two options. One scheme allows you to deposit fixed sum of money for a chosen period. At the end of the tenure, jeweller will add bonus. You can purchase gold equivalent to the value accumulated from the jeweller. Another scheme allows you to accumulate gold in terms of weight say 3 grams per month for fixed tenure. You can purchase jewellery equivalent to accumulated weight by end of the tenure without wastage or making charges.

Digital Gold:

Digital gold is purchasing of gold coins and bars online. Instead of physical possession gold is held online in individual account. Digi Gold is offered by paytm, phonepe and other websites. It is easy to buy and sell online. Digi Gold has various advantages like safety, liquidity.

Gold ETF:

Gold Exchange traded fund is a open ended funds that are traded in the major stock exchange. Gold ETF funds are units representing physical gold which may be in dematerialised form or paper form. Each unit of gold ETF represent one gram of gold. Individual can buy gold ETF and store in demat form.Gold is available at the international rate and there is no premium added to the rate. Gold ETF does not attract making charges or wastage.

Gold Schemes by Government:

Government of India has recently launched Gold related schemes like gold monetisation scheme, Gold sovereign bond scheme.

Gold monetisation scheme works like a gold savings account. Individual has to deposit gold in banks which will earn interest on the deposit. Individual can invest any form of gold like jewels, coins, Bars.

Gold sovereign bond scheme is alternative investment for purchasing Physical gold. Individuals earn fixed interest rate of 2.5% on the initial investment. Upon maturity investors can redeem for cash or sell it on any stock exchange. Gold sovereign bond is held in demat form.

Gold Mutual Funds:

Gold Mutual Funds are scheme that mainly invest in gold ETF and gold related companies. Gold Mutual Funds do not invest in physical gold.Gold Mutual Funds can be purchased via systematic Investment Plans.

Mentotax recommends to hold 2 - 5% of gold in your portfolio. Diversification in various asset classes are always preferred.

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Is it Good to Invest Hard Earned Money in Gold?

Before we make investment in gold, we need to know Why to invest in gold? What are the different ways to invest in gold?

Gold is a part of every house in India. People invest in gold for various reasons like high liquidity, Tangibility, Hedging, Diversification, Small Investment and wealth creation.

Investing in gold is good because it is hedge against inflation. Over the years investment in gold has given better returns beating the rate of inflation. Gold rate was Rs 14792 per 10 grams on April 2009 and it is Rs 30200/- per 10 grams today. Gold has delivered a return of 7.4% CAGR (Compounded Annual Growth Rate) over the last 10 years. Gold has given good return on investments over long term.

Gold is negatively correlated with equity investments, when equity is delivered poor, gold has performed better. Gold is used as hedging instruments at the time of recession. Gold prices are less volatile compared to the equity investments.

It is more liquid as there is always demand for the gold in global markets. Gold can be pledged in financial institutions for immediate cash. It can be accumulated even in small amount of less than Rs 500/- so Gold is accessible asset for all class of people. Gold has appreciated over the years by creating wealth to the person who possesses it for long period.

Gold is also one of the asset classes which should be in your portfolio for better diversification.

There are some disadvantages in gold investment too. Physical Gold may not generate income on investment, only capital appreciation. People may lose money in commissions and charges while buying gold jewelry, Storing of large volume of gold safely may be difficult and Individuals has to pay 3% GST on value of gold purchased.

Mentotax recommends to have at least 2 -5% of your portfolio in gold and gold related investments. Capital gains on the gold investment are subject to Income Tax.

If Gold is held for less than 36 Months, Capital gains are added to the income of the individual and taxed as per the applicable tax slabs

If Gold is held for more than 36 months, Capital Gains are taxed at 20% along with the applicable cess and surcharge for the gains.

Wait for our next blog to know more on different ways to investing in gold.

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Is Your Financial Goal SMART?

Having SMART Financial Goal will help you in understanding what you need to achieve, when and Where to invest and how much you need to achieve the life goal.

SMART (Specific, Measureable, Attainable, Realistic and Time Bound) Financial goals are Specific future need that requires Specific sum of money at the Specific Period. Financial goal must have all the three aspects.

Example: Down payment for car requires sum of Rs 2 Lakhs after a year.

Specific Goals: – Your goal should be specific and it is the first and important element of the goal. Make sure your goals are not generic but more specific.

Example:

I should become rich – General Goal.

I need to invest Rs 12,000 per month to have retirement corpus of Rs 1.00 Cr after 30 years. That makes me rich – Specific Goal

Measurable Goals: Your goal should have a target so that it can be measured. Measureable goals are more successful in nature. When you set a goal and start working to achieve it, It should have specific target to monitor your progress.

Example:

I need Rs 2, 50,000 for family vacation in 12 months – Specific Goal

You require Rs 2, 50,000 for family vacation in a year time. So you need to save Rs 20000 per month for 12 months to achieve the goal. Your goal is measureable in terms of money and time.

Attainable Goals: Your goals should be achievable and goals should be aligned with your income and expenses. Attainable goals will push you to work and save further to achieve it. Identify the steps that are required to reach your goal.

Example:

You need to save Rs 20000 per month to achieve the goal. Cut your expenses to boost the surplus. You can park your surplus in instruments to fund the goal.

Realistic Goals: Your financial goals should be realistic. Know your capabilities, Priorities and stretch yourself to achieve it.  Don’t take too much risk in achieving your goal. Goals get changes as time passes. So set a realistic goal to achieve.

Example:

You have never gone a foreign vacation, going for a foreign vacation is a realistic goal. It motivates you to achieve the goal.

Time Bound: Your financial goal should be time bound. Setting goals with the timeline will help you to monitor the progress and attaining it.

Example:

Going for family vacation after 12 months is time bound. You will be able to accomplish goal after by saving Rs 20,000 for 12 months.

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Say Yes to National Pension Scheme (NPS)

National Pension Scheme is a government sponsored Pension Scheme, which was launched on January 2004 for Government employees and later made open for all the section of individuals in May 2009. National Pension scheme is under the purview of PFRDA (Pension Fund Regulatory and Development of India). NDSL is the central record keeping agency (CRA) for NPS. It is a perfect solution for retirement planning.

National Pension Scheme has got two types of accounts

Tier 1  and Tier 2

Individuals can opt for only Tier 1 or Both Tier 1 and 2. PRAN (Permanent Retirement Account Number) is allotted for all subscribers of NPS .Tier 1 account is the mandatory account, contributions cannot be withdrawn until individual attains age of 60. Partial withdrawal is permitted only on extreme personal needs. Minimum contribution of Rs 500 and at least Rs 1000/Financial Year is compulsory. Tier 2 account is Voluntary Savings contribution account. Invested portion can be withdrawn at any time. Tier 2 Minimum contribution is Rs 250.

NPS Contribution are invested in Equity, Government Securities and Corporate debts. So Individuals investing in NPS get wide range of diversification, Risk mitigated returns when compared with other retirement solutions. Contributions to NPS are managed by the Pension Funds. Subscribers can select their own fund managers.

NPS offers two choices of Investment:

1. Active Choice: This option allows the investor to decide how the money should be invested in different assets. (Equity (E), Government Securities (G), and Corporate debts (C))

2. Auto choice: This is the default option which invests money automatically in line with the age of the subscriber across varies sectors.

Tax Benefit available to Individuals:

Individual Subscribers of NPS can claim tax deduction up to 10% of gross income under Sec 80 CCD (1) with in the overall ceiling of Rs. 1.5 lac under Sec 80 CCE.

Corporate Subscriber:

Additional Tax Benefit is available to Subscribers under Corporate Sector in 80CCD (2) of Income Tax Act. Employer's NPS contribution (for the benefit of employee) up to 10% of salary (Basic + DA), is deductible from taxable income, without any monetary limit.

Exclusive Tax Benefit to all NPS Subscribers u/s 80CCD (1B)

Additional deduction for investment up to Rs 50,000 in NPS (Tier1 account) can be claimed under subsection of 80CCD (1B). This is over and above the deduction of Rs 1.5 lakh under section 80C of Income Tax Act.

Mentotax recommends all the individuals to open NPS Account for accumulating the retirement corpus. Because of advantages like well regulated, Flexible for investments, Diversified portfolio, Tax benefits and better returns.

Mentotax advises EPF (Employee Provident Fund) Subscribers to open NPS Account and contribute minimum Rs 50,000 in Tier 1 and Contribute Voluntary of Rs 50,000 in Tier 1 to claim tax benefit under sec 80 CCD(1B) of Income tax act. Individuals in 30% Tax Bracket can save tax up to Rs 15600 , Assesse in 20% Tax Slab can save Rs 10400 and person in 5% Tax bracket can save Rs 2600 by contributing to Tier 1 of NPS. 

Person with Taxable Income up to Rs 5.00 Lakhs is exempted from paying tax from Financial Year 2020. Better utilize the NPS to reduce your taxable income and save tax up to Rs 13000/-

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Payoff Your Credit Cards

Pay off your credit cards:

If you wanna acheive financial freedom, Pay off your credit cards!!

If your using credit cards, you are utilising the future income today. It is a debt. Any form of debt is a burden for individuals.

Credit card gives interest free credit for 50 days by charging the annual fee.You should be very careful when your utilising the credit card, Few steps to follow for paying off your credit cards.

1) Pay your bills on time to avoid paying late fee and interest. Paying only the minimum due will help avoid penalty but not interest (32% to 40%) on the outstanding dues.

2) If you start paying minimum due amount, you lose interest free credit on the following month. You will end up paying more than what you utilise using cards.Control your expenses and spend as much as you can so that you can pay full by end of the month. Your credit card utilisation should be less than 30% of your income.

3) Never withdraw cash from credit card, you will be charged a fee for cash withdrawal and also interest for the amount withdrawn from day one.

4) Full utilisation of limit , Delayed payment of bills will affect your credit score. It is advised to keep your spending under limit and payment in full.

Proper understanding of your income and expense will help you to avoid using credit cards. start planning your weekly budget and monthly budget

Mentotax recommends to utilise the Investment not linked to financial goals to pay off the credit card bills. Mentotax also advises to you credit cards only for emergencies not for recurring expenses.

Financial independence can be achieved only when your free from debts.

Never fall prey to cashback, reward points and other offers by credit cards. It will keep you under debt always.

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Start Spending Money For Yourself

You can save for future but never forget to  spend some money on things that you love today. We earn for the betterment of our livelihood.

Key to financial freedom is to save and spend with intention

Plan your monthly budget according to your income and expenses. Allot some funds on your monthly budget for personal fun and entertainment. Personal fun includes all things that's brings you and family members together, Good food, Movies, Trips. Things that makes you feel relaxed and composed. Things that boost your productivity and efficiency.

Fun account is the intentional spending account. Mentotax recommends to have dedicated Fun Account ( savings bank account) to finance and track your expenses. It will help you on how much to spend with what you have on hand.

Few people will spend more money and save less. Even there are people who save more and have lot of money but never spend for themselves. It is always advised to save and spend with intension.

"Financial Planning is all about financing your needs and wants today with your needs and wants tomorrow"

If you rewind 5 years down the line gadjets, cars, shares and jewellery will bring less memories compared to the trips and parties you went with family and friends! so spend on things that bring memories and connect with people.

Mentotax recommends you to dedicate 5% of your income for fun account.

Having one's own happiness will nurture you to take next step in life and compete against yourself.

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