Gold Market
Jewellery expresses feelings like love, care and importance. In marriage, the father and mother give gold and diamond jewellery to their daughter. Even Tripathi wanted to follow this tradition, but there was a lot of time. Tripathi had 4 sons and 1 daughter. Meena, the daughter, was only 13 years old. Being the youngest in the family and the only girl, she was loved and pampered by everyone. Meena was very ambitious and she was very good at mathematics. They owned a small business that has been handled by their family for generations. Since the age of 10 years, she knew that she wanted to handle the family business. One day Tripathi, his wife and Meena attended a marriage. Seeing the bride so happy and beautiful, Meena said to Tripathi, “Daddy! Even I will get married someday”. Tripathi smiled at her and said, “Yes, beta!”. That night Tripathi realised that he had never saved anything for his children’s’ marriage. Even though all his children were below 20 years of age, it is hard to finance 5 marriages. The next day he asked his wife, “How much gold do we have?”. She replied, “I might have 6–7 sets of jewellery made out of pure gold. Why is everything okay?”. Tripathi panicked and replied, “I forgot that we had 5 kids and the oldest will get married in about 7 years. I haven’t saved anything for their marriage.”. Tripathi’s wife replied, “It’s okay. We’ll figure it out.”. Tripathi had his breakfast and left for work. He couldn’t stop stressing about the marriages the whole day. At 1 pm his friend from the neighbouring shop, Govind, came for lunch, as usual. When they sat, Govind noticed that Tripathi was very quiet when compared to usual. He asked, “Is everything okay Tripathi? You seem stressed”. Tripathi replied, “No, no! It’s nothing.”. Govind said, “ I have known you for more than 15 years now, I know you. Tell me what is the matter.”. Tripathi told him everything that happened in the wedding and at the house. Govind replied, “Why are you stressing over such a small problem.”. Tripathi shockingly asked, “You think this a small problem? And if you do, then you might know the solution too.” Govind, “Yes. Just buy gold from the market.”. Tripathi replied sarcastically, “Yes, I never thought of that. So stupid of me!” and continued after a pause, “Even if I buy it from jewellery shops, it is very expensive to maintain them and there is the fear of theft, and the shopkeeper could be a fraud.”. Govind replied, “Okay. Then, how about investing in gold in the stock market.”. Tripathi doubtfully replies, “I don’t think there is some option like that.” Govind replied, “There are many options, like Sovereign Gold Bonds and Gold ETFs.”. Tripathi replied, “What?”. Govind replied, “Do you have some patience! I was about to explain.”. Tripathi replied, “Okay. Sorry. Continue.”. Govind continued, “Thank you. So Sovereign gold bonds (SGB’s) is a scheme provided by the Reserve Bank of India (RBI) on behalf of the Government of India (GOI). You lend some money to the GOI for a specific period of time and on the day of maturity, you get back your money in the form of gold and you also receive interest.”. Tripathi replied in dilemma, “What?”. Govind replied, “Okay. For example, the current rate of gold in the market is 50,000 rupees per 10g. You are ready to invest in 50g of gold, but the gold will be for use to you after 4 years. So in such a situation, you can buy an SGB for 50g of gold with a maturity of 4 years. In such a way, you receive an interest of 2.5% p.a on 2,50,000 rupees. On the day of maturity, you’ll receive 50g of gold for rupees 2,50,000, irrespective of the ongoing rate of gold in the market on the date of maturity, and rupees 25,000 as your interest.”. Tripathi asked, “What if the market rate is 60,000 rupees per 10g?” Govind replied, “You’ll still get the 10g of gold in 50,000 rupees. This is a very secure scheme because it is issued by the Government. You could also get a bank loan against these bonds. The only drawback is that, even if the market rate of 10g of gold comes to 40,000 rupees on maturity, you’ll still receive the 50g of gold for 2,50,000 rupees.”. Tripathi replied, “This seems to be a very easy and safe method for long term buying of gold because in long term gold is generally known to rise.”. Govind replied, “Yes it is. But if you want the gold before the date of maturity, you cannot redeem the bonds. To prevent such situations, one could always invest in Gold-ETFs.”. Tripathi questioned, “What’s an ETF?”. Govind replied, “ETF or Exchange Traded Funds are as same as any other company equity. By buying 1 unit of Gold-ETF, you book some quantity of gold for yourself. For example, Today you buy 10g of gold for 50,000 rupees, and after 2 years when you’ll need it, you sell them for 54,000 rupees in the cash market and buy the 10g of gold from the local jeweller for 54,000 rupees. See, in this way, you can buy a gold ornament as per the ongoing fashion trend. You can sell the Gold-ETF units whenever you want to.”. Tripathi questioned, “Who sells these Gold ETFs?”. Govind replied, “Many different companies like Reliance, UTI and many more. You could buy gold -ETFs based on the credit ratings of the company.”. Govind questioned again, “How do we buy SGB and Gold-ETFs?”. Govind answered, “You’ll have to go to an exchange registered broker. But, for SGB, you could also go to a bank or designated post offices.”. Tripathi replied, “Thank you so much Govind! You helped me get this burden out of my head. I’ll discuss it with my wife and invest shortly.”. Govind happily said, “I am glad to help you out.”.
