Investments in The Time of Economic Uncertainty
Prof. Kamal Kalra (View Full Profile)
Controller of Examinations
Associate Professor of Finance
Most investors have faced a rout of their share portfolios in period of the current COVID pandemic. They have asked questions on what if any is a safe investment in these times. In times of major world crises like the great depression of the 1930s, the 2007-08 financial crisis, pandemics and other major catastrophe, humanity has believed in the value of gold.
From time immemorial, gold has been a store for value and when other commodity prices, US$ have slumped. Gold has had an inverse relationship. In the past, a gold standard was often implemented as a part of world monetary policy.
Under the Classical Gold Standard currencies of countries were pegged to the gold price. This system gave way to the Bretton Woods system in 1944 (named after the venue of the conference) of fixed currency rates linked to US$ @ US$35 per ounce.
This standard was abandoned when USA decided to do away with Bretton Woods fixed parity in 1971 as it was unsustainable. Of the total gold requirement each year 75% comes from mined gold and the balance from recycled gold. A total of 186,700 tonnes of gold existed above ground, as per statistics published by World Gold Council in 2015.
The gold still to be mined is however is difficult to estimate with certainty but it’s clear that it has limited supply The world consumption of new gold produced is about 50% in jewellery, 40% investments and 10% in industry Gold’s high malleability (ability to be hammered into sheets), ductility (drawn into wires),  resistance to corrosion and high conductivity have led to its continued use in industry.
In 2017, China with 440 tonnes per year was the largest producer of gold in the world. India is one of the largest importers and consumers of gold. Holding of gold in India (as among many other countries) is considered a shield against crises.
The Government of India has tapped this saving habit of the Indian population by coming out with a financial product that reduces the risk of gold holding and assures an annual return on the investment as well.
Enter the Sovereign Gold Exchange Traded Fund (SGETF). This Fund invites investments linked to the price of gold but does away with risks & costs of holding physical gold.
The investments are guaranteed by Sovereign Guarantee and linked to the average of the last 3 days of gold price at the time of redemption. The investment is for 8 years but early redemption by the end of 5th year is available. The unit is one gram of pure gold (up to 4 kg per person) and this can also be traded in the secondary market or pledged for loans.
Investments if done online, at the time of issuance, carries a discount of Rs.50 per gram in the announced price. Bonds will be issued in six tranches until September, 2020 and will be sold through banks and designated post offices. The interest @2.5% pa will be credited directly to the account of the investor subject to income tax at the applicable rate but will be exempt from Capital Gains Tax on redemption. The dates of issuance of SGETF are available on https://www.rbi.org.in. All subscribers to Securities trading account can make subscriptions to SGETF on the issuance dates given below.
Tranche |
Date of Subscription |
Date of Issuance |
|---|---|---|
2020-21 Series I |
April 20-24, 2020 |
April 28, 2020 |
2020-21 Series II |
May 11-15, 2020 |
May 19, 2020 |
2020-21 Series III |
June 08-12, 2020 |
June 16, 2020 |
2020-21 Series IV |
July 06-10, 2020 |
July 14, 2020 |
2020-21 Series V |
August 03-07, 2020 |
August 11, 2020 |
2020-21 Series VI |
Aug.31-Sept.04, 2020 |
September 08, 2020 |
