Author: Everypennycounts (aka Saurabh S)

Welcome to my personal finance blog! With over 18 years of experience in financial services, I’m here to help you become more money-conscious and take charge of your financial future. I’ve witnessed firsthand how transformative it can be to truly understand and manage your finances. Everyone deserves to feel confident in their financial decisions—whether you’re planning for the future, making smart investments, or managing everyday expenses. My goal is to simplify complex financial concepts, share practical tips, and offer guidance that you can easily apply to your life.

Decoding Stock Prices: Navigating Volatility with a Clear Perspective

Mohan (an investor): – Hey Mark, I’ve been pretty anxious lately with all the ups and downs in the Indian stock markets. I feel like I need to constantly check the stock prices.

Mark (The Planner): I get that. But this constant watching of prices might not be the best approach for your investment journey. I come across a lot of investors falling for this herd mentality.

Mohan: Why do you say that?

Mark: Well, the real issue is how we interpret stock prices. Many investors mistakenly believe that a lower-priced stock is a better buy than a higher-priced one. It’s similar to how people view mutual funds with different NAVs and incorrectly assume that a lower NAV is a better deal for them.Therefore, many people fall for New Fund Offer (NFOs) as they are issued at the base price of NAV 10.00

Mohan: Isn’t a low price a good reason to buy and a high price a reason to sell?

Mark: Absolutely, but it’s all relative. A stock price being “high” or “low” should be compared to that stock’s actual value, based on its fundamentals and future potential, not just the price tag.

Mohan: That makes sense. But during such volatile times, it gets confusing.

Mark: Exactly, and that’s when most investors can lose sight of the bigger picture. For example, a stock priced at Rs 25 isn’t automatically cheaper than one at Rs 800—it’s all about the company’s value behind those numbers.

Mohan: I’ve noticed a lot of buzz around “cheap” rupee and penny stocks. Do they offer better opportunities?

Mark: Not necessarily. A stock’s appeal shouldn’t be based solely on its price and the recent buzz created through various news channels and other mediums. The learned and sophisticated investors use ratios like price-to-earnings or price-to-book value, which provide context by comparing the price against the company’s business metrics.

Mohan: So, how should I think about prices in these volatile times?

Mark: Think of prices in context. Focus on the company’s fundamentals, its potential for growth, and the broader market conditions. Remember, a 10% daily drop doesn’t mean it’s suddenly a bargain.

Mohan: So, I shouldn’t ignore prices, but I need to understand them better.

Mark: Exactly, Mohan. Prices should guide your investment decisions, but context is key. In this highly volatile market, keeping focus on the bigger picture is more important than ever.

Mohan: Thanks, Mark. This really helps keep the market madness in perspective!

Section 45 Made Simple: Your Insurance Rights

Mohan (The Investor): Kumar, I’m planning to buy an insurance policy, but I heard there’s a clause in the Insurance Act called Section 45. What does it mean, and how does it affect me as a policyholder?

Kumar (Financial Planner): Great question! Section 45 of the Insurance Act, 1938, ensures fairness between the insurer and the insured. It essentially states that after three years from the commencement of a policy, the insurance company cannot question the validity of your policy.

Mohan: Oh, so the insurer can’t cancel my policy after three years?

Kumar: Exactly! However, this protection applies unless there’s evidence of fraud or deliberate misrepresentation on your part when you purchased the policy. For example, if you knowingly hide a major health condition or provide false information, the insurer can still challenge the policy, even after three years.

Mohan: That sounds reassuring. But what about the first three years? Can they cancel my policy during that time?

Kumar: In the first three years, the insurer can investigate and cancel your policy if they find that the information you provided was incorrect or incomplete. However, they must prove that the discrepancy was deliberate or material to the risk. They can’t cancel it without strong justification.

Mohan (The Planner): Honesty is key while filling out the proposal form.

Kumar: Absolutely! It’s important to disclose everything truthfully, especially regarding your health, lifestyle, and financial details. It not only ensures a smooth claims process but also safeguards your loved ones against any unpleasant surprises later.

Mohan : What if I make an unintentional error while filling out the form?

Kumar: Good point. If the mistake is unintentional and doesn’t significantly impact the risk assessment, most insurers are understanding. They may request clarifications or corrections instead of cancelling the policy.

Mohan : This clause sounds like a safety net for both parties. But how do I ensure I don’t fall into any trouble later?

Kumar: To stay on the safe side, always:

  1. Provide complete and honest information.
  2. Read the policy document carefully.
  3. Ask questions if you’re unclear about any terms.
  4. Keep all communication and documents related to your policy safe for future reference.

Mohan : Thanks, Kumar. This explanation really helps. I feel more confident about buying a policy now!

Kumar: You’re welcome! Let me know if you need help choosing the right policy or filling out the proposal form. It’s all about securing your financial future without worries.

Securing Your Child’s Future: Well Begun is Half done

This is a real case study of one of my clients when we first met in 2013. I received his call last week and he was quite happy of achieving his gaols. So, thought of penning down my ideas. The names here have been changed to protect ones identity.

Ravi: Mohan, I’m really worried about how I’ll manage to fund my 2-year-old son’s education. With so many financial products in the market, I feel lost. Can you guide me?

Mohan: Of course, Ravi. It’s natural to feel overwhelmed with so many options out there. Let’s simplify this. First, let’s estimate the future cost of your child’s education based on some basic calculations. What kind of career do you envision for him?

Ravi: Well, I’d like to keep options open, but let’s assume he wants to pursue MBBS.

Mohan: Good choice. The current cost for an MBBS program, including the internship, is around ₹30 lakhs for 4.5 years. If he plans to do an MD afterward, that might cost around ₹45 lakhs in today’s terms. These numbers are ballpark figures, of course, but we can use them to plan better.

Ravi: ₹30 lakhs for MBBS and ₹45 lakhs for MD? That’s ₹75 lakhs already. How much will it cost by the time he’s ready?

Mohan: Considering an 8% annual inflation rate, the costs will be much higher in the future. By 2034, when he might pursue his MD, we estimate the total cost of MBBS to rise to about ₹1.027 crores and MD to around ₹2.26 crores.

Ravi: Wow! That’s ₹3.28 crores! How will I save that kind of money?

Mohan: Don’t worry; with the right plan, it’s achievable. To meet these goals, you’ll need to invest systematically. To fund the MBBS cost of ₹1.027 crores by 2029, you’ll need to invest around ₹19,767 per month. For MD, you’d need to invest ₹23,151 per month to accumulate ₹2.26 crores by 2034. Together, this would require a monthly SIP of ₹42,918.

Ravi: That’s quite a big commitment. What if I start and lose motivation along the way?

Mohan: That’s where discipline and the power of compounding come in. Let me share an example of another client I worked with in 2013. He had similar concerns, and I suggested a mix of four funds for his goals.

Ravi: What happened with him?

Mohan: He started investing the following amounts:

  • ₹6,500 in a Small Cap Fund
  • ₹11,000 in a Tax Saver Fund
  • ₹13,000 in a Large & Mid Cap Fund
  • ₹12,500 in a Flexicap Fund

Together, his monthly investment was ₹42,918, just like yours would be.

Ravi: And how did it go?

Mohan: Amazingly well. Today, those investments have grown significantly:

  • Small Cap Fund: ₹39.95 lakhs
  • Tax Saver Fund: ₹44.79 lakhs
  • Large & Mid Cap Fund: ₹65.98 lakhs
  • Flexicap Fund: ₹55.88 lakhs

In total, he has already accumulated ₹2.06 crores, and he still has 5 years left to meet the MBBS goal and 10 years for MD. He’s comfortably on track to achieve both.

Ravi: That’s incredible. So the key is to stay invested long-term and stick to the plan?

Mohan: Exactly, Ravi. The simpler and more consistent your investments, the better your chances of success. Make your investments as “boring” as possible—no constant tinkering or chasing trends. Let time and discipline do their magic.

Ravi: This sounds reassuring. Let’s create a plan for my son’s education.

Mohan: Great decision! Let’s get started and ensure your son’s dreams are well-supported financially.

Smart Start: A Father’s Guide to Future-Proofing His Child’s Education

Scene: Inside Jatin’s office. Ashwini, looking both excited and worried, has come for financial advice regarding his newborn’s future.

Ashwini: Thank you for meeting me, Jatin. My wife and I just had our first child, and I’m already worried about their future education.

Jatin: Congratulations! That’s wonderful news. It’s great that you’re thinking about this so early. What’s your primary concern?

Ashwini: Well, these days children choose their careers. My parents decided that I would be an engineer when I was born, but times have changed. How do I plan financially when I don’t know what path my child will take?

Jatin: (smiling) That’s a very valid concern. Let me share something interesting – engineering might cost around ₹79.3 lakhs after 15 years, and medicine could go up to ₹1.2 crores, assuming 8% annual inflation.

Ashwini: (shocked) What? That’s… that’s astronomical! My neighbour just suggested me a money-back insurance policy…

Jatin: (interrupting gently) I’m going to stop you right there. While many Indian parents opt for money-back policies, they’re not the best solution. Instead, let me show you a more effective approach.

Ashwini: I’m all ears.

Jatin: Start with monthly SIPs in mutual funds. Look at these numbers – if you start now, you’ll need to invest about ₹10,996 monthly to accumulate ₹50 lakhs in 15 years, assuming 11% annual returns. But if you wait just five years, that monthly requirement jumps to ₹23,041.

Ashwini: That’s a huge difference! But isn’t the stock market risky?

Jatin: That’s why we’ll use a balanced approach. Think of it like a three-course meal. Your main course would be diversified equity mutual funds, especially flexi-cap funds. They help beat inflation over the long term.

Ashwini: And the other courses?

Jatin: (chuckling) For your appetizer and dessert – safer options like PPFs and Sukanya Samriddhi Yojana. They’re government-backed and tax-free instruments. But remember, don’t make these your main course – fixed returns might not keep up with the education costs. Stick to regular diversified funds. Also, avoid ULIPs – they’re expensive and inflexible.

Ashwini: But what if my child’s interests change? What if they want to study abroad?

Jatin: That’s the beauty of this plan – it’s flexible. As your child grows and their interests become clear, we can adjust the target amount and investment strategy. And here’s a pro tip – about 2-3 years before you need the money, we’ll gradually move it to safer options through an STP.

Ashwini: And if we still fall short?

Jatin: A small education loan can bridge the gap. It might even help teach your child financial responsibility and he will start paying off the loans. The key is starting early and staying flexible.

Ashwini: (looking relieved) This makes so much sense. When can we start?

Jatin: How about now? Let’s work out the exact numbers based on your current finances and comfort level.

Ashwini: Perfect! You know, I feel much better knowing there’s a clear plan. It’s like you said – start early, stay flexible, and keep reviewing the plan.

Jatin: Exactly! Remember, we’re not just planning for education; we’re planning for your child’s future, whatever they may be.

Ashwini: Thank you, Jatin. I am much relieved now.

Learn to Break from the EMI Trap: An alternative Approach that can save you a LOT!

Rita: Hi Mohan, I need some advice. Every month, my salary gets credited in the last week, and within hours, most of it disappears into EMIs. I feel like I’m stuck in  this vicious circle. With the festive season approaching, the offers are so tempting, but I’m worried I might overborrow again.

Mohan: I hear you, Rita. This time of the year is designed to make spending irresistible. The EMI culture makes it even easier to fall into the trap. Have you thought about how these EMIs are affecting your financial health?

Rita: I know the interest rates are high—somewhere around 12-20%. But when I see those “pay just Rs. 3,000 a month” deals, they seem manageable. It’s only later that I realize how much extra I end up paying.

Mohan: That’s exactly how they get you in the debt trap. Most people focus on the affordability of the monthly payment, not the total cost. But what if I told you there’s a way to avoid this EMI trap altogether? There’s a way out

Rita: Avoid EMIs? How? I thought they’re the only way to afford big-ticket purchases.

Mohan: Not at all! You can create a ‘Corpus’ fund. It’s simple—you set up an SIP in a short-term mutual fund with the same amount you’d typically pay as an EMI. Let that fund grow, and when you’ve saved enough, use that money to make your purchase outrightly. Don’t wait for the festival times.

Rita: Hmm, that sounds interesting. But how is it better than just buying on EMI?

Mohan: Think of it this way: With an EMI, you’re paying an interest rangig from say 12-20%, which means your purchase costs significantly more over time. With a Corpus build up, instead of paying interest, you earn returns—in the range of 6-8% since you are investing with debt funds for a period ranging from 6 months to 18 months max.

Rita: That’s a good point. But what if I want something immediately? Waiting for my fund to grow might not be feasible.

Mohan: Fair concern, but this approach will gradually teach you to keep your patience and financial discipline. If you really can’t wait, you can use part of your savings as a buffer. Over time, the habit will pay off. Also, if you save consistently, you’ll eventually have money ready for future purchases.

Rita: I like this idea. It’s like paying myself instead of the lender. But how do I start?

Mohan: Pick a short-term mutual fund suitable for your needs. Start an SIP with the same amount as your typical EMI. Think of this fund as your expenditure fund, not savings. Use it only when the balance is enough for your desired purchase.

Rita: Makes sense. I can also show this concept to my kids—it’s a great way to teach them financial responsibility. Maybe I’ll even use it to buy them something better in the future.

Mohan: That’s an excellent idea, Rita! It’s a practical demonstration of how patience and time can help you grow your money. Once you see the results, I’m sure you’ll never want to go back to the traditional EMI culture.

Rita: Thanks, Mohan. I feel like this is the mindset shift I needed.

Mohan: Great decision, Rita! Your future self will thank you. And who knows, maybe by next festival times, your fund will be ready for something bigger and better.

Navigating Chinese Markets: A Cautious Investor’s Guide

Rita: Hi Sam, I’ve been reading about the recent surge in Chinese markets. Do you think it’s a good time to invest there?

Sam: That’s a timely question, Rita. China’s market has indeed bounced back to the $10 trillion mark recently. But before making any decisions, let’s look at both sides of the story.

Rita: What do you mean by both sides?

Sam: Well, on the surface, things look promising. China remains the world’s second-largest economy, had strong GDP growth in early 2024, and still dominates global manufacturing at around 38%. However, there are some significant challenges too.

Rita: What kind of challenges should I be worried about?

Sam: The main concerns are in real estate, which makes up about 20% of their economy and is struggling. Plus, there’s low consumer confidence, high unemployment, and we’re seeing the highest foreign capital outflow since 2016. Their relationships with Western countries have also become complicated.

Rita: I see. How have Chinese market investments performed compared to Indian ones?

Sam: The performance comparison is quite telling. If we carefully look at the data, Indian markets have significantly outperformed China-focused funds since 2021. For example, our BSE 500 TRI showed a five-year CAGR of 21% as of July 2024, while major China-focused funds managed only 7% or even negative returns.

Rita: That’s quite a difference! But I’ve heard Chinese stocks are available at good valuations now?

Sam: Yes, they are trading at a discount, but as we say in the industry, investing in Chinese markets can be a topsy-turvy ride – thrilling but risky! However, there are some interesting opportunities, especially in sectors like AI, tech innovation, and electric vehicles.

Rita: So, what would you recommend? Should I invest in China?

Sam: Instead of going all-in on China-specific funds, I’d suggest a more balanced approach to international investing. If you want global exposure, consider more stable markets like the US.

Rita: But if I still want some Chinese market exposure, what’s the safest way to do it?

Sam: If you’re interested, the best approach would be through professionally managed mutual funds rather than direct investments. These funds are managed by experts who understand the market dynamics and risks. But remember, it should only be a small part of your overall portfolio. Let’s say max 5% of your overall investments

Rita: That makes sense. Better to be cautious than sorry!

Sam: Exactly! And one final piece of advice – if you do invest in Chinese markets, take a long-term view. The market can be quite volatile in the short term, as we’ve seen in recent years.

Rita: Thanks, Sam! This really helps put things in perspective. I think I’ll start with a small allocation through a mutual fund and see how it goes.

Sam: That’s a prudent approach, Rita. Remember to monitor your investments regularly and ensure they align with your overall investment goals and risk tolerance.

Understanding the Science behind Index Funds

Sweta: Hi Ravi, I’ve heard a lot about index funds lately. Could you help me understand what they are and if I should consider investing in them?

Ravi: Of course, Sweta! Let me explain it simply. Do you know how we have the Sensex and Nifty index that we see in daily news channel, headlines and newspapers?

Sweta: Yes, I see them all the time.

Ravi: Well, an index fund is a mutual fund that mirrors these indices. For example, if you invest in a Nifty index fund, your money gets distributed across all the 50 stocks that make up the Nifty, in the same proportion.

Sweta: That sounds straightforward. But why would I choose an index fund over a regular mutual fund?

Ravi: I Knew that you would ask about it. Well, there are several advantages to it. The biggest one is the cost factor. Since index funds are not actively managed by the fund managers, they have lower expense ratios. For instance, while an active fund might charge 0.30%, an index fund might only charge 0.15%.

Sweta: Oh, that’s a significant difference! But doesn’t that mean lower returns too?

Ravi: Not necessarily. Especially in the large-cap space, most actively managed funds struggle to beat the index consistently. The lower costs of index funds give them an advantage. Think of it this way – every rupee you don’t pay in fees is a rupee that stays invested and compounds over time.

Sweta: That makes sense. What should I look for when choosing an index fund?

Ravi: Focus on 2 main things: expense ratio and tracking error. You want the lowest possible expense ratio, and you want a fund that closely tracks its index – that’s what tracking error measures. The lower the tracking error, the better the fund is at replicating the index’s performance.

Sweta: Are there any disadvantages I should know about?

Ravi: Yes, the main one is that you’re essentially settling for average market returns. You won’t beat the market, but you won’t underperform it either. Also, since these indices are usually market-cap-weighted, they’re dominated by larger companies.

Sweta: How should I use index funds in my portfolio?

Ravi: I usually recommend using index funds for the large-cap portion of your portfolio – about let’s say 35 to 60% of your total equity investments. You can then diversify the remaining portion into actively managed small-cap, multi-cap, or sectoral funds based on your risk appetite.

Sweta: That sounds like a balanced approach. So I get the benefit of low costs for my core portfolio while still having room for potentially higher returns in other segments?

Ravi: Exactly! Index funds provide a solid foundation for your portfolio. They’re simple, predictable, and cost-effective. For your large-cap allocation, you could consider Nifty, Junior Nifty, or Sensex index funds.

Sweta: Thanks, Ravi! This really helps clarify things. I think I’ll start looking into some index funds for my portfolio.

Ravi: That’s great! Remember to check the expense ratio and tracking error when comparing funds. And as always, make sure it aligns with your overall investment goals and risk tolerance.

Market-Timing v/s Value Investing: A Smarter Approach to Market Investing

Rohan:“Hey, Sudhir! I’ve been reading your blog for a while now, and there’s something that’s been on my mind. You always say not to time the market, right? But then I see you talking about avoiding the overvalued market conditions and even the stocks that I want to buy! Isn’t that also a form of timing the market?”

Sudhir:“Good question, Rohan! It sounds like there’s a contradiction, doesn’t it? But there’s a big difference between the two approaches. Let’s break it down a bit.”

Rohan:“Sure, go ahead.”

Sudhir:“When I talk about not timing the market, I mean we shouldn’t try to predict short-term market movements/corrections – you know, the ups and downs from one day to the next day (Some time back only the Gulf War broke out!). Somehow we get into this false belief that we know whether prices will go up or down tomorrow, the next week, or even the next month. But in reality, all that one is doing is mere speculation. You know.”

Rohan:“So, you’re saying it’s impossible to guess where the market is headed in the short term?”

Sudhir:“Exactly! I have seen people trying to play ‘catch game’ the market’s highs and lows, only to miss out on long-term gains or take unnecessary losses. It’s tempting, but more often than not, people lose money or lose valuable time waiting for the perfect price entry or exit point.”

Rohan:“But isn’t it the same when you say we should wait for stocks to be ‘fairly valued’? Doesn’t that involve timing too?”

Sudhir:“Good Point though. I know where you’re coming from, but let’s look at it from a perspective. When I say you should be mindful of valuations it doesn’t mean I’m trying to guess when a stock will hit a peak or bottom. Instead, I’m assessing whether the current price makes sense based on the company’s fundamentals –its balance sheet, its growth story, and its industry position. I’m not saying ‘this stock will drop next month,’ but rather ‘this price doesn’t reflect what this company is worth today.’ It’s less about timing and more about fair pricing.”

Rohan:“Hmmm, so it’s more like being a smart shopper, not a fortune-teller.”

Sudhir:“Exactly! Think of it like this: when you’re timing the market, emotions – fear of missing out or panic when prices drop – often drive your decisions. That’s more like you are reacting to a specific event. But when you’re focusing on valuations, you’re taking a calm, business-owner mindset. You’re asking, ‘What is this? Is this stock genuinely worth it?’ It’s like shopping for value rather than gambling on sheer luck.”

Rohan:“I get it now. Instead of stressing over when to jump in, you’re simply checking if a company’s price aligns with its value.”

Sudhir:“Yes! This approach will keep you grounded at all times. To put it further, consider the current market from the Highs of BSE Sensex trading at 85,978 in Sept’24 to 80,000 in Oct’24 as an example. Some investors are frantically watching every 5% decline, wondering if this is ‘the big one’ they’ve been waiting for. They’re glued to charts and social media, following every prediction. That’s classic market timing. But on the other hand, a valuation-conscious investor is looking at individual companies, assessing if some great businesses are now selling at fair or even discounted prices.”

Rohan:“So, while the usual investor is more fixated on the market’s next move, the valuation-conscious investor is trying to find out the specific opportunities?”

Sudhir:“Exactly, Rohan! While the market timer might be paralyzed, waiting for the perfect moment, the valuation-focused investor is spotting strong companies at good prices – regardless of what the Sensex might do next week. It’s about taking a measured, analytical approach, and ultimately, that helps you make sound, long-term investment decisions. This is the long term principle that I have been following through”

Rohan:“Thanks, Sudhir! This makes so much more sense now. I’m beginning to see how I can keep my emotions in check and focus more on value than on timing. Really appreciate the perspective!”

Sudhir:“Anytime, Rohan! Keep those questions coming – it’s these kinds of conversations that make us all better investors.”

Overnight Funds: A Smart Alternative for Idle Cash Management

The Indian investor prefers to keep large amounts of cash idle in their savings bank accounts with two things in mind. Point number one they need it for emergency purposes; Point number 2 it gives them a piece of mind and Point 3 could be any other reason haha haha…!!!

What If I tell you that by investing into an overnight fund you can earn daily an average between ₹ 1.40 to 1.60 /- per day on a lump sum investment of ₹ 10,000/- this way you will make more money when compared to a normal savings bank account. Yes, you heard it right.

Let’s decode this fund type today through this short conversation between 2 people.

Jay: Hey, Nikunj! I wanted to pick your brain on overnight funds. Have you looked into them?

Nikunj: Oh, absolutely, Jay. They’re pretty useful if you’re looking for a place to park surplus funds with minimal risk for a short period. Overnight funds are open-ended debt funds that invest in assets with a maturity of just one day.

Jay: So, they’re like super-short-term investments?

Nikunj: Exactly! Here’s how they work: every day, the fund manager starts with cash, invests in overnight bonds, and those bonds mature by the next business day. Then, they reinvest that cash, and the cycle continues daily.

Jay: Got it. And the returns? I’m guessing they’re pretty stable?

Nikunj: Yes, returns are low but consistent since they’re purely interest-based on the daily borrowing and lending rates. This keeps them stable and liquid without much fluctuation. They’re far less volatile compared to other debt funds since the investment only lasts a day.

Jay: That makes sense. And what about redeeming the funds?

Nikunj: SEBI has set specific timings for the cut-off, so if you invest in overnight funds, make sure you’re aware of those. For example, to get the NAV applicable for that day, you need to invest by 12:30 PM. And for redemption, the cut-off is 1 PM.

Jay: Ah, good to know! And are these funds safe against market volatility?

Nikunj: Absolutely. Overnight funds are low-risk because they don’t face credit or interest rate risks like other debt funds with longer maturities might. They don’t get affected by RBI interest rate changes or credit downgrades as much. And since they don’t have an exit load, they’re quite liquid too.

Jay: Sounds ideal for someone like me, who’s risk-averse but wants a safe, short-term option. Any considerations before investing?

Nikunj: Yeah, since returns are lower, it’s essential to check the expense ratio and compare returns among different funds. The returns may vary slightly across funds, so it’s good to pick one with consistent performance and a reasonable expense ratio. Also, these funds are a suitable investment option for anyone who is looking to park their funds for the short term with zero risk and high liquidity. It is also suitable for small investors who are yet to decide the use of funds or are holding for a few days. For example, a borrower who has to make a payment to a supplier in a week can hold the funds in overnight funds rather than in a savings account. This would ensure an optimum utilization of surplus funds with low costs and higher liquidity.

Jay: And what about taxes?

Nikunj: Tax-wise, it’s like other debt funds. The returns are taxed based on your income tax slab.

Jay: Thanks, Nikunj! I might give these a try for short-term cash parking. They seem like a smart alternative to a standard savings account.

Nikunj: Definitely! Just remember to align it with your goals and risk tolerance.

Navigating Market Volatility with Gold: Is It the Right Time to Invest?

It’s a common Italian proverb “Where gold speaks, every tongue is silent.” This sentiment resonates quite well among Indian households as their penchant for Gold investing never seems to die. According to a report an average Indian household has 18% of their total investment in gold. Today will discuss about what are the options available if one is thinking about investing in to the Yellow Metal”

Shreya: Hey Ravi, I’ve been thinking about diversifying my investments. What are your thoughts on investing in gold these days?

Ravi: Good question, Shreya! Actually, gold can be a solid choice, especially during uncertain times. Not long ago, sovereign gold bonds (SGBs) were my top recommendation since they offered tax-free returns at maturity, paid an extra 2.5% interest annually, and were backed by the government. But, as of recent reports, the government has halted fresh SGB launches.

Shreya: Oh, I wasn’t aware of that. So, if I can’t invest in SGBs now, what are my options?

Ravi: That leaves us with two main alternatives: Gold ETFs (exchange-traded funds) and Gold FoFs (funds of funds). I wouldn’t suggest physical gold due to issues with storage, security, and liquidity.

Shreya: Got it. Can you walk me through what Gold ETFs are?

Ravi: Sure. Gold ETFs are like mutual funds but focused solely on gold. Fund houses usually buy physical gold and then store it securely, and then list this gold on the stock exchanges as ETFs. When you buy an ETF, you’re purchasing a share in that gold without needing to hold it physically. And just like stocks, you can trade them on exchanges, which makes investing in gold very convenient.

Shreya: That makes sense. What about Gold FoFs?

Ravi: Gold FoFs invest indirectly in gold through Gold ETFs instead of holding physical gold. Since FoFs operate like regular mutual funds, they don’t require a demat account. You can invest directly through the fund house, and they even allow SIPs.

Shreya: So, Gold FoFs sound more flexible for people who don’t want to open a demat account.

Ravi: Exactly. The downside, though, is cost. Since FoFs invest in ETFs, you end up paying fees at two levels: one for the FoF management by the AMCs and another for the underlying ETFs. So, for long-term investments, the expense ratio is something to watch for.

Shreya: Okay. Between ETFs and FoFs, which one do you think is better?

Ravi: It depends. If you already have a demat account and plan to invest in gold occasionally, Gold ETFs are more cost-effective. On the other hand, if you prefer SIPs and want to invest in gold regularly without a demat account, FoFs can work well.

Shreya: That’s helpful. What other factors should I consider before deciding?

Ravi: To cut it short, there at 3 main things to be considered before investing in either of these options: Expense ratio, Liquidity, and Premium/Discount to NAV. If you are considering ETFs, look at those funds which has lower expense ratios and high liquidity, which ensures smoother trading.

Shreya: Thanks, Ravi. This is a lot clearer now! I’ll take a look at both options and choose based on my needs and the costs involved.

Ravi: Sounds like a plan, Shreya! Let me know if you need help with any specifics.