gold as an assets class

8/12/2019 gold as an assets class

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IMPORTANCE OF GOLD AS AN ASSTES

CLASS IN FINANCIAL PLANNING

Submitted by:

Gyan PrakashReg.-11304559

Sec-Q1303


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COMPANY PROFILE

Incorporated in year 1986 at Ahmadabad in Gujarat as Reliance Capital &

Finance Trust Limited. The name RCL came into effect from 5 January

1995.

Presently the shares are listed on The BSE and NSE.

The Reliance Anil Dhirubhai Ambani Group is one of India's top 2

business houses, and has a market capitalization of over Rs.2,90,000 Crore.

The company which is today known as the largest financial service

provider of India

Reliance Securities has a pan India presence at more than 1,700 locations.

Reliance Money is the largest brokerage and distributor of financialproducts in India with more than 2.5 million customers and the largest

distribution network.

Reliance Capital has interests in asset management and mutual funds, life

and general insurance, private equity and proprietary investments, stock

broking, depository services, distribution of financial products, consumer

finance and other activities in financial services.


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COMMODITY MARKET

A commodity marketis a market that trades in primary rather than

manufactured products.

India, a commodity based economy where two-third of the one billion

population depends on agricultural commodities, surprisingly has an under

developed commodity market.

The size of the commodities markets in India is also quite significant of the

country's GDP of Rs 13, 20,730 Crore, commodities related industries

constitute about 58 per cent.

Commodity market is an important factor of the financial markets of any

country. It is important to develop an active and liquid commodity market.

This would help investors hedge their commodity risk.

Different types of commodities traded-

Metals: Gold, Silver, Platinum, Nickel, Aluminium, Copper etc

Agro-Based Commodities: Wheat, Corn, Cotton, Oils, Oilseeds.

Soft Commodities: Coffee, Cocoa, Sugar etc Ener : Crude Oil Natural Gas Gasoline etc


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INTRODUCTION OF GOLD

Gold is a precious metal with which mankind has had a long and famous

relation and it is the symbol of royalty & prestige.

Gold served as money until other forms of currency were devised and even

now gold is bought as an investment.

The innate high value of gold makes it a reliable form of wealth, no matterthe conditions. This makes it a hedge against economical fluctuations.


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FINANCIAL PLANNING Financial planning is the process of meeting your life goals through the

proper management of your finances.

Life goals can include buying a home, saving for your child's education

or planning for retirement.

The financial planning process involves the following steps:1. Gathering relevant financial information

2. Setting life goals

3. Examining your current financial status

4. Coming up with a financial strategy or plan for how you can meet your

goals

5. Implementing the financial plan

6. Monitoring the success of the financial plan, adjusting it if necessary


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WHY FINANCIAL PLANNING IS

IMPORTANT Helps in determine your short and long-term financial goals and create a

balanced plan to meet those goals.

reasons why f inancial planning

Income:It's possible to manage income more effectively through planning.

Managing income helps you understand how much money you'll need fortax payments, other monthly expenditures and savings.

Cash Flow:Increase cash flows by carefully monitoring youre spending

patterns and expenses. Tax planning, prudent spending and careful

budgeting will help you keep more of your hard earned cash.

Capital:An increase in cash flow, can lead to an increase in capital.Allowing you to consider investments to improve your overall financial

well-being

Family Security:Providing for your family's financial security is an

important part of the financial planning process. Having the

proper insurance coverage and policies in place can provide peace of mindfor you and your loved ones.


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WHY INVEST IN GOLD?

Gold, the most precious metal of all, is also a popular form of investment.

The savings come handy, for instance, during your daughters wedding.

Investors can make the most out of its appreciating value potential without

going through the hassles of physically possessing it, through Gold ETFs

and Fund of Funds (FoFs).

Throughout history the demand for gold has always been strong. Its

reputation for being a safe store of wealth and its long documented role as a

global currency has lead it to be considered one of the most valuable assets

of today. Unlike paper money, you cannot print, devalue, or float gold an

ounce is an ounce wherever you go in the world. Furthermore, gold

uniquely sits in its own asset class.

For the past two decades, gold has continued to return at a stable rate,

lending precious metals its reputation for being a reliable and trustworthy

investment perhaps this is why central banks around the world have been

amassing gold for some time now.

Golds purchasing power, over centuries has had experienced minimal


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GOLD AS AN ASSET CLASS

The rules of globalisation deem that in our current interrelated world; the

breakdown of one system ripples throughout our entire economies. Gold

however is unique and resides in its own asset class. The economic forces

that determine the value of other assets like bonds, real estate and equities

are different to the variables that govern the price of gold.

Historically, data suggests that gold has shown insignificant correlation

with other asset classes. Unlike other financial investments that are

dependent on the continued vitality of institutions and individuals; gold is a

physical store of wealth that acts independently of involuntary third party

institutional or government market movements.

Gold is one of the only financial assets that is not dependent on a third

parties promise to perform. Gold therefore offers an opportunity for

investors to diversify their investment portfolio reducing the overall

portfolio risk and providing protection against short term

underperformance. Gold as an asset further acts as an inflation and

currency hedge.


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RETURN ON GOLD INVESTMENT-

IS IT PROFITABLE TO INVEST IN

GOLD? Gold recently crossed its Rs 32,000 per 10 gm mark. This is a historicmoment and I am sure a lot of people want to get into gold investments for

their own set of reasons. But how to invest in gold, given there are so

many ways of gold investing these days, most of the people are stuck with

so much of choices. More than the price, the bigger deterrent the confusion

of best option to invest in gold

This investment proved remarkable from 2006 to 2011.During that time

span Gold has given average return of 29% per annumwhich was any

day better than other investment options.

However, the long term average return on gold investment is less than 10%

p.a.

As one can say technically or ironically but history always repeats itself.

Therefore, we may once again observe the similar less than 10%

appreciation pattern in gold prices in near future.

Investing money in gold is worth because it is a hedge against inflation.Over a period of time, the return on gold investment is in line with the rate


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HOW TO INVEST IN GOLD

CORRECTLY? PHYSICAL GOLD

The oldest and most widely used way to invest in gold is in the form of

physical gold. I would say this is form with which most of the people are

comfortable with. From centuries, physical gold is the only way to invest in

gold. Now coming to the point, there are two ways to invest in physical

gold

JEWELLERY

This is the most famous way of investing in physical gold. This is mostly

done for consumption rather than investment. Obviously jewellery is

also an investment product in itself, but most of the people buy it forconsumption purpose. The best part of Jewellery is that its very easy to

invest in it, all you need to do is cash or cheque and thats all, you can buy

it. Also the whole family is more comfortable with this option. However

the sad part is that you do not just pay the market price of gold, but also

making charges for jewellery. As its in physical form, there are chances of

theft also. One more problem with jewellery is that there are chances of


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FACTOR AFFECTING GOLD PRICE

INFLATION

Inflation is regarded as the number one top factor affecting the price of

gold. We said earlier that gold didnt have a practical business or personal

use, but the one use it does have is a retainer of value and wealth. Therefore

it makes sense that in an inflationary environment, where the value of paper

currency is falling in regards to what other goods and services can be

bought with it, that people should want another form of money (gold) that

does retain its value.

The CPI (Consumer Price Index) is a measure tracking the price change in

a basket of common household goods, and is intended to give a good feel

of how much inflation there is in an economy and impacting the average

urban civilian. The CPI or cost of living index in most countries is tightly

controlled by governments and might not include key spending areas like

food, energy, utilities, education and healthin the attempt to curb

concerns about inflation.

The PPI (Purchasing Power Index) is a similar tool but from a producer


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COSTS OF GOLD INVESTMENTS

The costs of a gold investment depend very heavily on the

specific type of investment and on the specific provider of the

product. From an investors standpoint, the costs can be

categorized as one of the following: Costs for buying gold /

gold investments Regular costs for administration /safekeeping of the gold investment Costs for selling a gold

investment


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SWOT ANALYSIS OF GOLD

STRENGTHS

Gold is an asset class which was

used as an investment vehicle

Gold has ready marketability and

Liquidity

Limited Supply

Central Banks are buying more

gold because currencies are

falling

Gold is one of the few asset

classes which have performed

well in the recent times.

Unique Properties of Gold Gold is

ideal, despite its cost, for use inmedicine

WEAKNESSES

Gold is an idle asset with no

regular return profile.

Gold storage has costs, including

cost of insurance.

The Cost of Gold- It pushes an

industry search for cheaper

alternatives. This coupled with

poor economic conditions.

Gold prices have been volatile in

recent times. A correction cannot

be ruled-out which may involve

significant reversal.


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OPPORTUNITIES

Inflation Hedge

Political opportunities

Increasing Household Wealth inEmerging Markets

Increases Gold Demand

Future Growth in Jewellery

Consumption

THREATS

The gold market is also subject to

speculation as other commodities

are, especially through the use of

futures contracts and derivatives.

Drop in Sales of Jewellery

Generally Poor

Economic Conditions reduce the

demand for gold products even

though gold products have a

greater longevity.


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WHY INDIA IS A LARGEST

CONSUMER OF GOLD? Gold is considered a symbol of security and sign of prosperity.

Gold is ancestral and passed down from generation to generation

Gold is viewed as auspicious and intrinsic to weddings ceremony

Festivals: Akshaya Tritiya Gudi Padwa & Dhanteras

Gold is universally recognised as a source of wealth Largest consumer of gold but low per-capita consumption. In India it is

about Savings & Accumulation & not about Profit Bookings

High awareness of price movements

It is common for parents of a child to start collecting gold in jewellery for

the childs security, exigency, marriage, etc

Most of the Gold collection generally begins in an Indian family from the

Godbharai ceremony, to getting bracelet & anklet of black & white

colour beads to protect the child against the evil eyes

Offerings to Gods: Lord Tirumala is the richest religious shrine in theworld with an annual revenue of Rs.1, 200 crore and gold reserves of


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SIGNIFICANCE OF GOLD IN

INDIAN HOUSEHOLDprovident andpension fund

7%

currency7%

shares anddebentures

6%

Gold7%

Insurance fund10%

Depsit fund16%

physicalsaving47%

festival21%

bonous

4%

price drops13%

gifting

12%impulsive7%

marriage43%


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WHY GOLD RATE IS INCREASING

IN INDIA? In the International markets, Gold is relatively stable. However in India,

Gold is rising due to these factors,

1. Uncertainty about the Economy is making investors good deal to Gold

which has delivered returns in the past few years.

2. Lack of Investment opportunities along with cultural demand of Gold isshoring up consumption of Gold in India

3. Depreciating currency is aiding in the rise of Gold further

4. Multipurpose use of Gold is also aiding in increased consumption. In

India we can use Gold as security, as investment, as loan guarantee

commodity and we can also get loan on simply pledging gold.5. We are also entering festive seasons.


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SIP IN GOLD

Period 1 Year 3 Years 5 Years 7 Years 10 Years

Amount Invested

(Rs.)60,000 180,000 300,000 420,000 600,000

SIP Start Date 01/04/2013 01/04/2011 01/04/2009 01/04/2007 01/04/2004

Gold Price

(Rs/Gm) (As on

March 31, 2014)

2491.67 2491.67 2491.67 2491.67 2491.67

Total no. of units

accumulated23.18 68.49 139.51 249.27 505.79

Investment value

(As on March 31,

2014) in Rs.

57,753.89

170,653.40

347,613.10

621,101.70

1,260,271.33

Returns on SIP in

Gold (%)-6.89% -3.44% 5.83% 10.99% 14.21%


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BENIFITS TO OWN GOLD

Unlike paper currency, coins or other assets, gold has maintained its value

throughout the ages. People see gold as a way to pass on and preserve their

wealth from one generation to the next. Today the US dollar is worth some

80 percent less than it did 40 years ago. This trend in the decreasing value

of the dollar means that it now buys less than 5 percent of what it did some

40 years ago. Currency is not a good buy under these circumstances. Stocksand shares are subject to so many variables such as market trends, company

director and management decisions and so on. Agricultural commodities

are subject to unpredictable variables such as the weather for example. Few

commodities have consistently managed to retain their value come what

may. One of these is gold.Unlike other commodities, gold keeps it purchasing power. Whereas each

year it takes more dollars to buy the same amount of goods or services, this

does not apply to gold. An ounce of gold will buy today exactly the same

amount or quantity of goods or value of service as it did 40 years ago.

Against a backdrop of decreasing value of currency it can be clearly seenthat it is not the value of gold that changes, but the quantity of currency


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GOLD: A SAFE HAVEN ASSET

Recognized as a form of a tradable liquid asset

A hedge againstinflation, rupee depreciation, and social insecurity

Over 1, 3 and 5 year period Gold has been less volatile than all major

equity indices

Gold is less volatile than equity as an asset class and thereby helps tostabilize portfolio returns

Gold has been a consistent performer and has given over 17% return across

time period for the given time period

Whether it is the tensions in the Middle East, Africa or elsewhere, it is

becoming increasingly obvious that political and economic uncertainty isanother reality of our modern economic environment. For this reason,

investors typically look at gold as a safe haven during times of political and

economic uncertainty. Why is this? Well, history is full of collapsing

empires, political coups, and the collapse of currencies. During such times,

investors who held onto gold were able to successfully protect their wealthand, in some cases, even use gold to escape from all of the turmoil.


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CONCLUSION

The objective was to examine the importance of gold as an assets class in

financial planning. Our methods avoided the limitations of previous studies

by using longer historical periods, a focus on gold price return, improved

and consistent risk estimation and enhanced Optimisation technology.

The evidence indicates that gold may be a valuable tactical asset. Gold is

highly susceptible to geopolitical factors. During times of relative stability

a small positive allocation may be useful. During time periods of

abnormally positive economic activity gold returns may reflect multiplier

effects associated with cultural issues. During periods of fiscal or monetary

mismanagement, crises of various kinds or fundamental changes in the

dominant currency, gold may be a very useful asset for hedging risk.

Gold may have a comparable portfolio weight to asset classes such as small

cap and emerging markets due to its value as a diversifying asset class.

With the exception of commodities, gold is not a substitute for other assets

but adds diversifying power across much of the risk spectrum. Because

they are diversified, commodity indices generally have less short-term

gold as an assets class

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