Why and how much to invest in gold

Every investor and even a layman knows that it's extremely safe and stable to invest in gold. However, why is there a sense of stability and security when it comes to investing in gold. Apart from that investors are generally confused when it comes to composition of gold in their portfolios. Whatever the case it is a must to have gold in your portfolio. Today I will try to answer some of these generally asked queries.

Why Invest in Gold?

Since time immemorial gold is seen as a commodity of immense value and is attached with social status. It is used in making jewellery, dentures, electronic circuits & equipments, industrial catalysts and what not. This has driven it's market price through the roof. Barring few lows gold has always performed well. During economic downturn or recession gold is the best hedge against eroding financial & notional investments. The reason is gold is something physical and real which has real value. This is the very reason various central banks are hoarding gold for last 3-4 years or since 2008 U.S. recession. When economy is not performing well investors look out for stable and secure investments, it is the time when they lap up gold at any price.  This is precisely the reason why gold prices shoot up like anything during recession. Another reason worth looking up is that gold reserves are dwindling down with each passing day. With demand increasingly going up and supply going down, gold prices are nowhere going to stay where they are. You can invest in gold either by purchasing physical gold bars from financial institutions or by purchasing it indirectly through Gold ETF or GETF.

Why and how much to invest in gold

How much to invest in Gold?

Having gold in your portfolio is good but don't overdo it as you need to diversify across asset classes in order to generate a consistent and fair amount of return. Gold is basically included to give your portfolio a safety net just in case it is not performing well. Ideally an allocation of 10-20% is more than enough to save you of any considerable fall in your notional investments. If you are thinking to buy physical gold then prefer gold bars rather than jewellery as gold jewellery looses it value over a period of time due to adulteration & wear & tear. But physical gold beyond a level attracts Wealth Tax in some countries like India. Apart from that gold needs to be stored and taken care of. So considering these factors I would advise you guys to invest in Gold mutual funds and ETF's. They are safer and does not attract any wealth tax. 

Whatever the decision you take don't just blindly jump into gold bandwagon as different assets perform well in different times. Last 4-5 years belong to Gold. So stay focused keeping in mind your ultimate investment objective and invest accordingly. 

What are "Direct Mutual fund" plans?

Recently the Indian capital market regulator SEBI or Securities & Exchange Board of India announced plan to introduce Direct Mutual fund plans  from 1st January 2013. Reacting to this announcements some of the fund houses have either increased or tweaked the exit loads for some of the mutual fund schemes. On top of that some of the investor who wish to invest in direct plan (through transfer) are made to pay the exit loads, whereas others are simply allowed without paying a dime.  The simple logic behind this is the time duration for which investor  remained invested in the fund and the mode of application. If you applied with the AMC directly prior to Jan 1 then you need not pay any exit load to transfer to Direct plan. On the other hand if you invested through an agent then you need to pay the exit loads prevalent at that time.

Must Read: How much to invest in mutual funds?

What is a Direct mutual fund plan?

A direct mutual fund plan is one in which you directly approached the asset management company (AMC) or mutual fund house and invested with them without the help of any agent or broker. This non-intervention of intermediary leads to lesser expense ratio for the fund hence a slightly higher NAV or net asset value.  However the normal plans will continue to be distributed through brokers & distributors.

So from this article it's pretty clear that not all investors end up paying the same exit loads. This depends on the date on which we invested and entered in the contract with the AMC. Even if the AMC changes the exit loads during the course of time, you are only bound by the exit loads mentioned in the schemes offer document. So the next time you plan to invest in a new mutual fund don't forget to invest some time reading the offer document and acquaint yourself with the various charges associated with the scheme. SEBI has always protected the investor rights and direct plans are another step in the right direction. 

How to open a savings account online

Technology has changed the way we used to transact. A visit to bank branch has been replaced with swiping the debit card at the nearest ATM vending machine. You can invest in mutual funds as well as do your future financial planning online these days. On the same lines some of the leading banks have made account opening process online. State Bank of India, Kotak mahindra bank and Yes Bank re now allowing customers to open up online savings account. With RBI and the government receptive to opening up of banking sector more banks are expected to follow the suit very soon.

How to open a Savings bank account online: 

For opening a bank account online you have to visit  the bank website & click on the relevant link.  Yes bank recently launched a service "Yes Touch" to assist new customers in opening new accounts.  Here is a link to open Yes bank account online & here is a link to open kotak mahindra bank account online. On bank's website you will be sent to an online form which requires you to fill relevant information like name, phone number, address, PIN number of your locality, preferred branch, email etc. Once you submit these details message containing an authentication code will be sent to your mobile phone. This step is basically meant to verify your credentials.  Immediately after entering the verification code you will receive another message containing a reference number which can later be used to carry out other transactions. 

Open a online bank account

Verification Process:

After you have filled all the relevant information online, now you need to provide relevant document copies as proof to the information you have provided. This is required to complete the KYC norms as has been laid down by the RBI. Yes bank provides you with the convenient option of uploading the document online. Kotak Mahindra Bank doesn't provide with the option to upload but sends it's employee to your home to collect the same. State bank of India on the other hand only allows you to fill the form online but you have to visit the branch to submit your documents & photographs.

This is meant as guide for you to open up an online bank account not an exhaustive method to do the same. Please feel free to ask more questions and give your suggestions.

Financial Planning a Must for Everyone

Money is one thing you cannot keep hold of until and unless you plan how to spend and invest it in a  planned manner. It is one process which requires lot of patience and grit. Basically there are two ways to earn money. One is to work for a firm or your own business and then get your salary or profits, the other way although applied by very few is to make your savings work for you. Your savings if not invested properly will erode away with time as inflation eats away the purchasing power of money. Here comes the role of financial planning where you pin point you current and future needs and then plan your finances.

Financial planning is needed by one and the all. Whether you are a top shot business man, a top company executive drawing a handsome pay check or a common man you will have to manage your money either by yourself or a finance professional. Financial planning helps one attain both his.her current and future needs. Financial planning process briefly:

Financial Plannning

The Risk appetite: First of all the risk appetite has to be measured. If the person is too much risk averse. Then he should not invest much in equities, futures and options. Even is equities try to invest in well established blue chip stocks or dividend paying stocks so that you attain a regular cash flow. The rest of the portfolio may be invested in money market instruments, certificate of deposits, fixed income, gold & Silver funds etc. If you like taking risk then at least 70 percent of your investment should be in equities. If you want huge gains then try to pick some good stocks from mid cap or small caps. Pick a bouquet of  5-10 stocks, most probably even is 9 fail the gain given by one will more than cover the losses. 

Your Life stage: Your life stage has a very important role to play in financial planning process. If you are 20 something who has just joined a job and has most of his money at his/her disposal then you can always take more risk. Whereas if you are middle aged then you need to tread with caution as you have very important responsibilities on your shoulders. If you are near your retirement then you should be even more cautious as this is the time when you need you savings the most. After your retirement you savings should last till the end.  

Taking into consideration above two factors Investment objectives are desigen. Some of the investment objectives are:

1. All Equity: Major part into equities
2. Balanced objective: Healthy 60:40 Equity to Debt ratio
3. Balanced Income: Dividend paying equity 
4. Current Income: Mostly money market instruments that pay on monthly basis
5. All fixed income: most of the investment in fixed income

Financial planning is a life long process as old needs end new ones come up and we will have to plan our finances to achieve these goals. Hope you guys liked this article. I will further try to cover this topic some other time as this is a lengthy topic and needs considerable time.