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Here come the 'gold'en opportunities
Sangita Shah | August 26, 2003 12:04 IST
Gold in physical form, especially jewellery, is no big deal for Indians. For centuries, denizens of the sub-continent have been parking a substantial portion of their savings in safe haven gold.
And central banks across the globe use the yellow metal as a hedge against currency fluctuation.
The hassle of storing gold in a safe place and also the cost attached to such storage is inducing investors to look for alternative investments in gold apart from holding the metal in physical form.
Moreover, investment in jewellery also entails the cost of making charges and alloy addition, which lead to loss in investment at the time of sale.
Thus, gold coins and bars are fast moving up the preference list of savvy investors.
The ICICI Bank, Tanishq and leading local jewellers that have launched gold coins and bars are finding that buyers of such products are increasing fast.
The UK-based Gold Field Mineral Services, the official data channel of the World Gold Council, said investments in gold bars have seen a substantial rise in India.
Apart from investment in gold coins and bars, the other investment options include mutual fund schemes, gold deposit schemes or gold mobilisation schemes, gold denominated certificates (similar to that of promissory notes -- issued generally by leading established jewellers), and exchange traded funds.
The gold mobilisation scheme by banks has not taken off in the country but new gold deposit schemes are in the offing. Besides, mutual funds are planning schemes dedicated to investments in gold; leading jewelers already have monthly and yearly gold recurring schemes.
Banks are also looking at issuing gold-denominated certificates, which can be bought in cash and redeemed in gold.
WGC has already initiated efforts in this direction. While the mutual funds are expected to launch dynamic gold investment schemes, the ideal for a passive investor would be the one being launched by Benchmark Mutual Fund.
The scheme is yet to get the regulator's approval, but it is worth noting that WGC has launched more or less similar schemes recently in US and Europe.
The passive investment scheme in gold would be an exchange traded scheme -- an open-ended fund, and will be listed on the exchange in the form of an exchange traded fund tracking the domestic prices of gold through investments in debt paper linked to gold prices.
The scheme would be designed to provide returns, which would closely correspond to the returns provided by gold.
Each unit being offered will have a face value of Rs 100 each or equivalent to the price of 1 gram of gold (approximately Rs 500) and will be issued at a premium equivalent to difference between allotment price and the face value.
Units allotted under the scheme will be listed on the stock exchanges and can be bought/sold like any other stock on the National Stock Exchange of India Ltd. or on any other exchange where it is listed.
The authorised participants and large investors will be able to directly buy or sell with the fund in creating units, it will provide efficient arbitrage between the traded prices and the NAV, thereby reducing the incidence of such units being traded at a premium/discount to NAV.
Moreover, the units will be available in dematerialised form, which will help consolidate them with other portfolio holdings and also eliminate the need for and risk of physical storage.
On the other hand, the new gold savings account being worked out by the WGC in conjunction with banks would offer systematic investment plan.
According to Sanjeev Agarwal, managing director, Indian subcontinent, WGC, low interest rates and the volatile nature of equity markets mean investment in such schemes would provide a strong buffer in case of declining fortunes along with the benefit of accumulating gold to meet social obligations.
Such schemes are already under operation in other countries. A similar "Gold trading account or gold storage account" is popular in Hong Kong.