Can the ideal equity portfolio beat inflation substantially?

With every passing year, inflation tends to erode the purchasing power of your money. However,by staying invested in equity for a longer period of time; you could beat inflation.

Let’s assume that your equity portfolio has delivered 10%,of which, inflation will consume 7%;leaving you with only 3% which would be your inflation-adjusted return. At the onset, it seemed lucrative but when you adjusted it against the inflation, it was nominal. This is how inflation impinges on your investments in the long run. Equity as an asset class has outdone the inflation in the past, for instance, Sensex has delivered 16.06% CAGR in the last 38 years, beating inflation by 8.09%.

INFLATION1Source : MOSF

The above chart depicts that if you had invested Rs.100 in the year 1979 in to 3 different a venues i.e. Fixed Deposit, Gold and Sensex, today the Value of Rs.100 after adjusting for inflation would have remained almost at the same level in FD,would have merely been just above double in Gold, but in Sensex,it would have been almost 15 times.

Worst Retirement Mistakes and Remedies to improve them

YOU COULD also beat inflation through investing directly in equity, provided you have the time and expertise to study the stock/company before you buy and monitor them periodically or simply leave it to an expert by investing in Mutual Funds.

DISCLAIMER

Past Performance is Not Indicative of Future Results.

No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here.

Sovereign Gold Bonds to open for subscription from Monday

The seventh tranche of Sovereign Gold Bonds (SGBs) will be open for subscription from February 27 under which, securities worth up to 500 grams of gold could be bought by the public. This would be the last offering for the current fiscal.

The Government of India in consultation with the RBI has decided to issue Sovereign Gold Bonds 2016-17-Series IV, applications for which will be accepted from February 27 to March 3. These bonds will be issued to eligible applicants as on March 17, 2017.

Launched in November 2015, the SBG scheme is an alternative mode of investment to physical gold. The scheme provides investors a choice to diversify their portfolio without actually buying the physical gold. Six tranches of the SGB have already been issued by the Government.

The government gathered Rs 3,060 crore from five tranches.

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The scheme at a glance

  • Issuance and sales channel: The bonds are issued by Reserve Bank of India on behalf of the Government. These Bonds are sold through scheduled commercial banks (excluding RRBs), SHCIL offices, designated Post Offices and recognized stock exchanges, NSE and BSE.
  • Tenor: The tenor of the bonds will be for a period of 8 years with exit option from 5th year to be exercised on the interest payment dates.
  • Mode of payment: The payment for the bonds will be through cash payment (up to a maximum of Rs 20,000) or demand draft or cheque or electronic banking.
  • Maximum limit: The maximum amount subscribed by an entity will not be more than 500 grams per person per fiscal year. A self- declaration to this effect will be obtained. In a case of joint holding, the investment limit of 500 grams will be applied to the first applicant only.

Top 10 largest gold reserves by country

  • Taxation: The capital gains tax arising on redemption of SGB to an individual has been exempted. The indexation benefits will be provided to long-term capital gains arising to any person on a transfer of bond.

The investors of the scheme will be compensated at a fixed rate of 2.50 per cent per annum payable half yearly on the nominal value of an investment.

The bonds can also be used as collateral for loans. The loan-to-value ratio is to be set equal to ordinary gold loan mandated by the Reserve Bank from time to time.

The Price of a bond will be fixed on the basis of a simple average of closing price of gold of 999 purity as published by the India Bullion and Jewelers Association Limited for the week (Monday to Friday) prior to the subscription period. The issue price of the Gold Bonds will be Rs 50 per gram less than the nominal value.

The Gold Bonds will be tradable on stock exchanges from a date to be notified by the RBI.

BEWARE! ANOTHER FINANCIAL CATASTROPHE IS READY TO HIT GLOBAL ECONOMY

Remember year 2008s Lehman brother’s subprime crises that traumatize financial institutions, trembled global economy and capital markets across the world. Since then global economy is witnessing periodically hits one after another by way of grace, Spain, Italy’s, European crises, last one i.e. Brexit.

Now it’s time of Germany’s one of the largest bank investment Deutsche bank. No surprise! Reasons are the same  old issues as major corporate frauds, financial mess, over exposure to risk assets, lack of transparency, lust of number one, unhealthy completion .It seems that we are not ready to learn any lessons from the others mistake. At one time Deutsche bank was mixed up in 72 trillion $ of derivatives financial instruments about a quarter of total global derivatives exposure, which is  as on today brought it down to 42trillion $ (only).

Deutsche bank several Vice presidents are being interrogated by Interpol for various corporate fraud.

DEUTSCHE BANK

In any business debt ratio beyond certain admissible level is not acceptable. Deutsche bank very smartly (?) converted debt by using currency swap method.

This issue became more dangerously visible when it’s US subsidiary failed to clear the US stress test & in the investigation US authorities found deutsche guilty of miss selling mortgage back securities. US authorities offered 14 billion $ settlement with minimum amount of fine but deutsche bank CEO not only express his inability to make its payment but anywhere near to that amount due to liquidity crunch.

Wait not all over yet. Three major banks are in trouble Deutsche is just one of them & this is for sure that if it sinks it could take many more banks with it.

Selected Bank fines and settelments

Now the problem is that bank is severally  under-capitalize, should infuse capital. Their capital requirement is 254 % of the market capitalization. But the question is how it will happen? Banks financial derivatives investment appears sound which include interest component along with the principal. Whereas practically some of them are not recoverable. Some of them have cap on loss making circumstances. So the options are very limited.

Turnaround of Deutsche bank is also very limited due to its single arm business as investment banker business with such profitable potentiality. Management is looking several other cost cutting options from staff downsizing to closing operations in some countries including some home branches. Its share is also plummeted heavily & lingering low to its 33 years.

Even if deutsche bank sale its UK & China base insurance business will generate not more than 5 billion $.Sale of equity is also not the option one can consider due to fall in share prices in the market. European Union central bank’s rules are stringent even if Germany wants to bail out package.

Deutsche Bank's Share price

Deutsche bank’s failure will be a major embracement for the Germany & its political leaders who gives lectures to other financially stressed European Union member countries. Though initially German authorities denied any government support but they will not allow to fail & will do all possible efforts to save such major bank. But major concern is of its quantum of financial mess.

More important to see all these developments in the back drop of euro zone developments. Already euro zone economy of the euro zone countries, their banks are in crises, Brexit is imminent. Migration in European countries from war zone countries is already affecting the economy of the member countries including Germany besides their euro zone financial crises.  In such situation failure of any such major bank leads to financial earth quick with its magnitude 5 times more than Lehman brothers problem.

EMI VS SIP ( Be controlled or take control )

But one thing is for sure Germany & Europe  cannot allow to collapse that not only could lead to free fall of global banking but could lead to the entire European Union collapse.

Such major financial catastrophe always results in upsurge of precious metals such as gold, silver due to its safe & secure investment. It is estimated that gold can go up to 1500 to 2000 $ per ounce minimum and silver not less then 50 to 75 $ per kg.

In the given circumstances Indian investors neither required to press panic button immediately nor ignore or buy time with wait & watch approach. Instead of it, should adopt balance approach & start using much neglected strategy SWP i.e. systematic withdrawal plan effectively. Start booking profit of fairly appreciated investments & investing in stocks with strong fundamental background, or schemes with diverse portfolio with investment in blue chip companies.

DISCLAIMER

No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here.

Top 10 largest gold reserves by country

1. United States

Coming as a surprise to no one, the United States is the third largest producer of gold and the single largest holder of gold reserves in the world. The only larger gold reserve in a single organization is the G6, of which many nations reside in the top ten individually. The United States gold reserve percentage is 72.7 percent, with the physical stockpile reaching 8,133.5 tonnes. This number has fallen in the last half-century from the all-time high of over 20,000 tonnes.

2. Germany

As the second largest holder of gold reserves in the world, Germany has been selling gold in small amounts over the last several years. However, the country recently announced its intentions to purchase gold from physical reserves in both Paris and New York. The current German gold total is 3,381 tonnes, making up 67.1 percent of the country’s forex reserves.

3. Italy

Italy has seen its share of economic problems in the last decade, and its high gold reserve percentage is a symptom of the larger problem. Italy’s forex reserve ratio sits at 65 percent, with the country holding slightly more gold than France. Italy holds 2,451.8 tonnes of gold in reserve.

4. France

France is the first country on this list to break 2,000 tonnes of gold in reserve. The country currently holds 2,451.8 tonnes. The country has recently sold over 500 tonnes, but has no plans to continue these sales in the coming years. France has a high reserve percentage in gold investment, reaching 62.1 percent.

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5. China

China is the world’s number one producer of gold, and yet very little of that gold is held in reserve for the country. Instead, most of it is sold and the profit reinvested in the Chinese markets. In the coming years, however, China looks to be expanding its need for gold, to increase its forex percentage above the current 1.6 percent. China currently holds 1,708.5 tonnes of gold in reserve.

6. Russia

Russia is the fourth largest producer of gold in the world, and has been building up its own reserves since 2006 in order to diversify. After a domestic purchase in 2012 of around 75 tonnes, the Russian gold reserve total reaches just shy of 1352.2 tonnes. This investment brings the forex reserve percentage up to 13.1 percent.

7. Switzerland

Prior to 1997, Switzerland was steadily building its gold reserves. In 1997, the decision was made to sell some of those reserves to bolster the Swiss currency and diversify the forex reserves. The forex reserve percentage in Switzerland is currently 13.1 percent, with the country being the lowest on this list to hold over 1,000 tonnes; the total currently announced as 1,040.1 tonnes.

8. Japan

The small but powerful nation of Japan had been steadily increasing its reserves of gold since the 1960s. That reserve grew until the year 2011, when the country began to sell some of its reserves in order to calm the investors and stimulate the economy in the wake of the tsunami and the following Fukushima nuclear disaster. Japan’s reserves hover around 2.2 percent, with the official total reaching 765.2 tonnes.

9. Netherlands

Over the last decade and a half, Netherlands has been selling off some tonnes of gold to reduce its reserve. Less gold sold than the country wanted, and in recent years, this desire to sell has been reduced. Netherlands holds 55.8 percent of its forex reserve in gold, which currently totals 612.5 tonnes.

10. India

India rarely invests much in gold, as the country operates under a belief that buying gold leads to a deficit. The country currently holds 557.7 tonnes of gold, making up 5.6 percent of the country’s total forex reserve.

Gold at 3-month low after US data, eyes biggest weekly drop since 2013

Gold crashed to fresh three-month lows on Friday amid a surging dollar, as a robust U.S. jobs report augmented hawkish arguments for a December interest rate hike by the Federal Reserve.

A rate hike is considered bearish for gold, which struggles to compete with high-yield bearing assets.

MCX GOLD closing Price on Friday is Rs. 25523/-

However, markets have been pricing it according to the higher probability of a rate increase in December 2015, and thus the dollar has correspondingly gained. Higher interest rates should cause money to flow in the US, thus giving a push to the greenback. But a rising US dollar would likely cause dollar-denominated assets like gold and silver to fall as they are now more expensive for the foreign buyers.

SPDR-Gold-Shares-GLD-Fund-Flow-2015-11-05

On the Comex division of the New York Mercantile Exchange, gold for December delivery traded in a broad range between $ 1,084.60 and $ 1,109.70 an ounce before settling at $ 1,088.00, down 16.20 or 1.47% on the session. Gold has fallen nearly 8% since the start of trading on Oct. 28, the first of its current eight-session losing streak. At one point on Friday, gold fell to its lowest level since Aug. 7. The precious metal is nearing its six-and a half year low from July when it plunged below $ 1,080 an ounce during a 10-day skid.

On Friday , the U.S. Department of Labor said in its October national employment report that nonfarm payrolls surged by 271,000 last month, significantly above expectations for a consensus gain of 190,000. The sharp gains marked the largest increase in U.S. nonfarm jobs since last December. Private payrolls also soared by 268,000 in October, above forecasts of a 174,000 increase.

gold-and-dollar

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, shot up more than 1.25% to an intraday high of 99.47. The index soared to its highest level since mid-April.

The Fed’s first rate hike in nearly a decade is viewed as bullish for the dollar, as investors abroad pile into the greenback in an effort to capitalize on higher yields. Dollar-denominated commodities such as gold become more expensive for foreign purchasers when the dollar appreciates.


Silver for December delivery fell 0.278 or 1.88% to 14.705 an ounce.

Copper for December delivery lost 0.013 or 0.56% to 2.242 a pound.

RBI fixes gold bonds issue price

Reserve Bank of India (RBI) has fixed the public issue price at Rs 2,684 per gram for the sovereign gold bonds, for which applications will be accepted from November 5 to 20.

The gold bond scheme will offer investors an interest rate of 2.75 per cent and a choice to buy bonds worth 2 grams of gold, up to a maximum of 500 grams. “The issue price of the sovereign gold bond for this tranche has been fixed at Rs 2,684 per gram of gold.

gold-bond

“The rate has been fixed on the basis of simple average of closing price for gold of 999 purity of the previous week (October 26-30, 2015) published by the India Bullion and Jewellers Association Ltd (IBJA).

Gold Monetisation, Bond Schemes

“The tenor of the bond will be for a period of eight years with exit option from 5th year to be exercised on the interest payment dates.
The interest earned on gold bonds would be taxable, and capital gains tax shall be levied as in case of physical gold. The bonds can be bought by resident Indian entities including individuals, HUFs, trusts, universities and charitable institutions.

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