Gold Exchange Traded Funds (or Gold ETFs) combine the two passions of many investors – stock trading and gold investments. They provide a channel through which you can be a part of the bullion (gold) market. The investor’s funds are invested in gold stocks but there is no physical delivery of the yellow metal. They are often referred to as open-ended Mutual Funds that invest the corpus in gold bullion.
Key highlights of Gold ETFs:
Gold ETFs in India started in the year 2007. Slowly but steadily they have started gaining momentum. Some of the key benefits offered by Gold Exchange Traded Funds are:
1. Transparency: Transparent pricing is one of the USPs of Gold ETF. Like stock prices, information about gold prices are easily available to the general public. You can easily determine the value of their portfolio by checking the gold prices for that time or day.
2. Ease of trade: Just like shares, Gold ETFs can be easily traded on the stock exchange. You need to buy a minimum of one gram of gold which is equivalent to one unit of Gold ETF. Investors can invest in Gold ETFs from any location in India. Moreover, the difference in price (due to GST) will not be applicable.
3. Cost efficiencies: Unlike many investment avenues, there are no entry or exit loads with Gold ETFs. The only cost involved would be the brokerage fees.
4. Risk: Unlike physical gold, there are no storage hassles or theft fears with Gold ETFs. Additionally, gold prices are not prone to frequent fluctuations. This makes Gold ETFs a relatively safer choice.
5. Tax efficiencies: Gold ETFs do not attract any wealth tax or securities exchange tax. Also, if they are held for a period of more than one year, the gains are treated as long-term capital gains. For anyone interested in holding gold, these ETFs provide a tax-efficient alternative.
6. Diversification: Gold ETF investments can help to bring diversity in the investment portfolio. During volatile market conditions, they can help to stabilise or improve the overall returns for you.
7. Collateral: Gold ETFs are accepted as security collaterals for loans or capital borrowings by many financial institutions.
Why is investing in Gold ETFs better than traditional forms of gold?
- You do not need to worry about impurities or adulteration in the metal
- As ETFs are held in electronic form, there are no storage related issues or costs
- Easy trading on the stock exchanges and hence high liquidity
- Real-time tracking of investments
- No mark-ups costs such as making charges, wear and tear involved
- The price of Gold ETFs remains the same throughout the country. However, the gold prices can vary from one location to another.
How does Gold Exchange Traded Fund work?
The investment is converted into unit of gold basis the cost applicable at the allotment time. For instance, the cost of gold (per gram) on a particular day is Rs. 3000. Ms. X wants to invest Rs. 60,000 in Gold ETFs. Her investment amount will get translated into 20 gold units.
At the back-end, physical gold acts as security for these ETFs. For example, if you invest in Gold ETFs, the entity at the back-end purchases gold. They act as the custodian for the investment and also guarantee for the purity of the metal.
The stock exchanges assign the responsibility of buying and selling gold to authorised members or participants which in turn can be used to issue ETFs. These are usually large companies. As a result, these authorised members ensure that there is parity between the gold cost and ETFs.
How to invest in Gold ETFs?
Gold ETF investments are a simple affair.
1. Choose a broker or fund manager: Many financial institutions (including banks) offer Gold ETF products. Similar to the online share trading, you would need to reach out to a fund manager or a firm which will trade on behalf of you.
2. Demat and Trading Account: In order to invest in Gold ETFs, you need to have a demat account and an online trading. You can apply for these accounts online with the broker or such service provider by providing details like PAN, Identity Proof, residential proof, photograph and a cancelled cheque (for bank account linkage).
3. Online Order: Once the accounts are in place, you can select the desired Gold ETF and place the order through the broker’s online portal. You can also opt for Mutual Funds which have an underlying Gold ETF.
4. Confirmation: The placed orders are then routed to the stock exchange. The purchase orders are matched with the corresponding sell orders and accordingly executed. A confirmation email or message is sent to you.
Who all should invest in Gold ETFs?
Gold is a relatively safe and stable investment. Its prices do not fluctuate as much as equities. Hence, Gold ETFs can be a good choice for you, if you do not want to take too much risk. Additionally, since these ETFs are tradeable easily on the stock exchange, they are useful if you are looking for an investment opportunity with high liquidity. Hence, it is a good option for you to diversify your portfolio.
So, if you meet the requisite objective of investment, Gold ETF is a good option for you as well.
Things to keep in mind while investing in Gold Exchange Traded Funds
Here are some tips that you could use while investing in Gold ETFs
- Gold is generally considered as a stable asset. However, you should not forget that the Net Asset Value (NAV) of Gold ETFs can also fluctuate basis market volatility
- As an investor, you need to bear brokerage fees or commission charges for Gold Exchange Traded Funds. Hence, you should check these costs while deciding on the broker or fund manager
- However, you should not make the decision on the basis of price alone. Consider the broker/ fund house’s past track record, services provided, type of clients handled etc. before choosing the service provider
- Do not over-invest in Gold ETFs. It is usually suggested to restrict investment in these ETFs to 10% of the entire portfolio.
A smart investor knows that all that glitters is not gold. A good fund manager or firm helps choose the best Gold ETF products in India. IndiaNivesh, a well-known financial services company can help in this regard. With their rich experience in the Indian market and in-depth understanding of the financial ecosystem, they have helped numerous customers to grow their wealth and fulfill their financial goals.
Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
What is NCD (Non Convertible Debentures)? – Meaning & Features| IndiaNivesh
What is NCD (Non Convertible Debentures) Investors are continually looking for new investment avenues, especially in a market where conventional investment instruments and sometimes falter in a volatile market. One such attractive proposition that can help you manage liquidity and risks while offering significant profits are nonconvertible debentures (NCDs).What is NCD?Nonconvertible debentures meaning, NCDs are financial vehicles issued by reputed companies for a specified period of time with a guarantee of a fixed interest to investors. Unlike standard debentures, nonconvertible debentures cannot be transformed into equities or company shares. The company that issues the NCD decides on the interest rates. On maturity, investors receive the principal amount and the interest together. Nonconvertible debentures can be held by individual investors, banking institutions, primary dealers, unincorporated establishments, registered corporate bodies and other bodies incorporated in India. Companies issuing upcoming non convertible debentures in the market, do so to raise funds from the public. These NCDs can be secured or unsecured. Secured nonconvertible debentures are supported by the issuing company's assets to accomplish the debt responsibility. Hence, if the company fails to pay its investors, they can claim the payment by liquidating the company's assets. On the other hand, unsecured NCDs are ones that are not supported by the company's assets. Thus they hold far higher risk than secured NCDs.Features of nonconvertible debentures:Interest rates Typically, the interest rate of NCDs overs between 10 to 12%. Fixed deposits on the other hands could offer a maximum of 8% returns. Hence, compared to most investment options, NCDs can be lucrative due to its high-interest rates. However, how credit rating agencies grade a company’s NCD can be inversely proportional to the interest, it provides. For instance, a highly rated NCD could provide low-interest rates. But compared to corporate fixed deposits, bank fixed deposits and government bonds that give a maximum of 8% returns; nonconvertible debentures offer returns up to 11%, which makes it an attractive investment instrument.Pay out options If you are looking to invest in nonconvertible debentures, you can benefit from a variety of interest pay out options such as on a monthly basis, quarterly, six-monthly or annual basis. Typically, NCDs could mature from 90 days to 20 years. Hence, you have the opportunity and flexibility of choosing short and long-term tenures depending on your investment objectives.Liquidity Non convertible debentures are listed on stock exchanges and offer secure withdrawal options. Redeeming your investment from NCDs can be easier than bank fixed deposits, and hence, can be considered as providing better liquidity than FDs.IssuanceA company that offers nonconvertible debentures through open issues can be purchased within a specified timeframe. Similarly, NCDs can also be purchased from the stock market. To understand what is ncd in stock market, you may want to look into the open stock market and exchanges for easily tradable NCD options.Stringent credit ratingNCDs are only authorised to be issued by companies that have good credit ratings. Credit rating agencies rate NCDs and revise ratings regularly.Things to consider before investing in non convertible debenturesIt is critical to understand how NCDs can be vulnerable to risks. These risks could be related to how a company's business is handled and how it utilises its funds. An NCD’s credit rating could take a hit if the company's turnover is impacted negatively. To address the impact, companies then borrow additional funds from banks and lending institutions. This is why it is critical to consider a few points before investing in nonconvertible debentures. These include:Issuer's credit ratingOpt for a company that has a credit rating of AA and above. The score is a crucial indicator of the company's potential to raise funds from external and internal operations. The rating is also evidence of the company’s sustainability. Credit rating is a valid parameter that can expose the financial position of the company.Debt levelsIt is essential that you conduct background checks on the asset quality of the organisation if you are considering to invest in its nonconvertible debentures. If a company is allocating more than 50% of its entire assets in unsecured loans, it can be a sign to stay away from such companies.Understanding CARCapital Adequacy Ratio or CAR looks into the company's capital and calculates if it has adequate funding to outlive potential losses. It can be an excellent idea to look into the company you plan on investing to see if it has at least 15% CAR. Alternately, you must also ensure that the company has historically maintained the CAR over a period of time.Looking to NPAsA company issuing NCDs must set aside at least 50% of their assets towards Non-Performing Assets or NPAs. This can be an optimistic indicator of the company's asset quality. In the event that the company's quality declines due to bad debts, you may want to take it as a warning.Gauging ICRA company's ability to settle the interest on any of its debts at any given time can be witnessed in its Interest Coverage Ratio or ICR. The ICR of a company reveals how it can handle potential non-payments.Tax bracketIf you belong in the 10% and 20% tax plan, you may find nonconvertible debentures as a lucrative investment option. This is because, if your tax bracket is low you stand to earn more from NCDs.ConclusionThere is a marked difference between fixed deposits and non convertible debentures. It can be an excellent idea to look into specific factors before selecting an NCD as an investment option. Consider the company's financial health and how it employs its funds if you notice a diversion from its core business; it can be a sign to stay away from the said company. Going through the credit rating of companies can also give you a fair idea of how your investment is secured. For instance, you may want to steer clear from companies that have low ratings but temptingly attractive, high returns. Such propositions could be risky in the long run, especially if the overall financial health of the company is not stable. Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
Investment Banking - Overview, Types and All You Need to Know
Most people get awed when someone mentions that they are investment bankers. You think of a high-profile corporate professional, decked up in a smart suit making a crisp presentation to the top management. But do we really know what does an investment banker do or what is investment banking? Read on to know more.What is investment bankingInvestment banking is the arm of a bank or any other financial institution that offers financial consultancy and advisory services to entities, government or individuals. They render a wide range of services to their customers which includes:• Capital Issue ManagementIndian investment banks offer public issue management through two routes:o Fixed Price Methodo Book Building MethodThey also offer assistance to firms during IPO (Initial Public Offer), FPO (Follow on public offer), Rights issue, Preferential Issue and debt placement. • Advisory services during mergers and acquisitionsInvestment banks play a crucial role during mergers and acquisitions. They help the entities to make the right deals by checking feasibility, minimizing risk and maximizing ROI. They either represent the seller (target representation) or the buyer (acquirer representation). Some key activities in M&As include:o Establishing a fair and just value for the involved partieso Sourcing dealso Financing • Debt SyndicationInvestment banks also help companies to look for new finance opportunities and sources. This includes project finance, working capital loan, term loans, commercial borrowing, etc. • BuybacksAnother common activity performed by investment banks is to advise their clients when and how much to buy-back their shares. • Legal complianceInvestment bankers help their clients in ensuring that they adhere to all the statutory requirements and compliances as laid down by SEBI. • Corporate AdvisoryThese services are usually offered to large-scale organizations or corporate bodies. Investment banking includes doing business appraisals, developing business plans, strategic advisory, valuation, corporate restructuring, etc. These services are often tailor-made as per the needs of the clients. Investment Banking in IndiaInvestment banking in India is not a new concept. The roots of modern day investment banking can be traced back in India to the 19th century. This was the period when European banks created trading banks in the country. Investment banking in India used to be referred to as merchant banking. For many years, foreign (non-Indian) banks continued to dominate the merchant banking scene.However, in the year 1970 State Bank of India decided to venture into this domain. It created the Bureau of Merchant Banking and many national banks registered in this initiative. The first national financial institution that offered merchant banking services was ICICI Securities. Within a decade, the number of merchant banks grew beyond 30. The rapid growth in the financial industry especially commercial banks further fueled this growth in the later years. Since its inception, there have been numerous developments in the structure, role and services provided by investment banking.Association of Investment Bankers of India (AIBI)AIBI is a SEBI recognised body and acts as the nodal body of Indian investment banks. Its objective is to set in place standard practices, professional benchmarks and guidelines for rendering efficient services in the field of investment banking. Initially formed as Association of Merchant Bankers of India (AMBI), it has recently undergone a transformation phase to come in sync with the current market scenario. It was during this brand transformation that the name of the body (along with the logo) was updated to Association of Investment Bankers of India (AIBI) as investment banking’s scope is much broader than the erstwhile merchant banking. Currently, there are 59 investment banks (SEBI registered) who are members of AIBI.Some of their key activities include:• Code of ConductAIBI comes out with the Code of Conduct that needs to be followed by all members. This ensures quality, uniformity and standardisation in the investment banking services. Additionally, a Due Diligence Manual is also shared with all the participating members. • WatchdogAIBI acts as the watchdog for the Investment Banking industry in India. It ensures that all members follow ethical practices and adhere to all the legal / statutory guidelines. • Thought Leadership and central repositoryAIBI acts as the nodal point for assimilation and distribution of information related to the investment banking ecosystem. • Representation at PMACIt represents the investment banking industry at the PMAC (Primary Markets Advisory Committee) formed by SEBI. • Events, seminars and annual summitsAIBI frequently organises events and workshops on matters related to the investment banking domain. Types of investment bankingThere are different types of investing banking service providers. Such as:• Full-Service FirmsFull-service investment banks offer the whole suite of services. For instance, underwriting, Mergers and Acquisitions, merchant banking, distribution, brokerage, asset management, structured investments and research. • Boutique FirmsThese are specialist investment banks which offer niche or specific investment banking services. These are relatively newer entrants in the market and have evolved as a result of market demand by smaller entities and start-ups. • Commercial BanksSome commercial banks have also extended their scope beyond pure banking and offer some investment banking services. • Brokerage FirmsThese firms only offer trading services to their clients. They are often used by underwriting investment banks while placing issues.Choosing an investment bankChoosing the right investment bank plays a crucial role in achieving the desired results. Here are some factors that you should take into consideration.• Capabilities and credentialsProfessionals in their team and their skills, market experience and credibility. This also includes support teams such as research, information technology, etc. • ExperienceExperience with relevant services and your sector / sub-sector needs to be checked. • Size/Volume of transactionsDetails of comparable transactions (basis your requirement) completed in the last five years will help with this information. • Accessibility and transparencyLevel of transparency displayed by the investment bank in their transactions along with their day-to-day accessibility needs to be assessed. Many times, local support or presence is preferred. • Valuation MethodologyAlignment with your business’s needs and the valuation methodology of the financial partner is important. IndiaNivesh is a well-known name in the Indian financial solutions industry. It offers a wide range of services including investment banking. Their ability to offer customised solutions and connect businesses enables them to act as a professional navigator for the long-run growth of their clients. They specialise in:• raising capital (from domestic and global sources)• facilitating entry of foreign enterprises in India• globalisation of domestic entities• corporate finance activities and• support during mergers and acquisitions.For a runner, the perfect running shoes can make all the difference. Similarly, the correct investment banking partner can help you get the much needed competitive edge. With a suite of unique products and market expertise, IndiaNivesh can be that partner for you.Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
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