Exercising discipline is extremely important in every aspect of life. This cannot be more stressed in the case of managing your money. The manner in which you manage your expenses is the key to reduce liabilities and save more. According to a famous trading and investing legend- One must not spend time looking for the Holy Grail of investments or trading systems. It doesn’t exist. The Holy Grail is within you. It’s not the investment that’s going to determine success or failure rather it’s the discipline of the investor.

There are 2 friends Mr. X and Mr. Y both in their late 20s. Mr. X has a monthly income of Rs. 60,000, while Mr. Y has a salary of Rs 40,000 per month.  However, Mr. X’s job is more stressful and demanding; while Mr. Y has a comfortable job with low stress levels and better work life balance.

Mr. X lives a lavish life. He spends most of his salary; saves inconsistently. On the other hand Mr. Y is very regular in savings. From his monthly income, he saves Rs 15,000 a month in the following investment options.

Pension - Rs 3,000; Child plans -  Rs 2,000; Mutual Funds -  Rs 4,000; Emergency fund -  Rs 1,000; Vacation fund -  Rs 1,000; PPF – Rs 2,000; Mediclaim-   Rs 2,000

Suppose at the age of 44 years, both have a medical emergency. Due to lack of savings Mr. X would be stumped. However, in case of Mr. Y, his saving patterns, as visible below, would be able to save the day and give him the ability to meet the sudden expense.

One can never predict life. It’s difficult to anticipate bad times. Hence, it is essential to save for such rainy days. One should make it a habit to save, even if it’s a small amount.

Here are some steps which one can follow.

Track expenses: This is the foremost step. You should keep a check on monthly expenses. Unnecessary expenses should be avoided. One way to know how much one spent for a month is by having a monthly budget. This will show where the money is spent and also regulate the cash flows. This done over a period of time will help you identify areas where there is room to cut back on spending and save money. This will free up cash, which can be used to pay up existing debts or help save for the rainy day. Reducing spending, as opposed to earning more money, is the real key to gaining control of finances. Also, you must ensure that some money is set aside to cover monthly expenses for at least three months. These funds should be set aside such that can be readily accessed in case in times of emergency or as a contingency fund.

Pay off debts/ credit card debts: Paying off your debts early is one of the best investments you can make, specially paying off debts which have a high rate of interest.  This includes the credit card payments which generally have higher interest costs.

Create discipline: You need to have discipline in the way you spend and control your expenditure. It is the key to save. A consistent plan of saving and investing helps attain one’s goal. With discipline and time one can reach goals.

Importance of saving: Here is a simple example. There are 2 friends, Mr. A and Mr. B. Mr. B saves Rs 500 per month. Mr. A saves nothing. Over the years, here’s what happens.

The discipline of saving regularly has helped Mr. B be richer by Rs 19, 931. Also what you earn is not as important as what you save. If you spend everything you earn in futile pursuits and wasteful expenditure, then there is no point to the amount earned.

Invest: Start the wealth building exercise by investing in low risk investments. Once the base is strong, then increase the risk exposure by investing in higher return investments. Also, do not put all the eggs in the same basket. Your risk tolerance level goes a long way in defining your investment approach. However, do remember your investment objectives before you subscribe to an investment plan.

Follow a systematic investment plan: Invest at regular times. By doing a SIP, you can SIP (sleep in peace). This will help you reduce the cost and earn higher returns in the long term.

As seen in the case of Mr. Y, by saving regularly helped him meet the medical emergency with ease. By following these simples steps, you can make your money last longer!

Fixed deposits in banks are one of the most preferred investments by risk averse Indians who also look forward to earn a higher interest rate as compared to the normal savings account in the bank. Now these fixed deposits have another wonderful benefit to offer the customers and that is the provision to take a personal loan against it in times of requirement. This a great idea for personal loan that actually comes at a much lower rate of interest as the bank gets the security of the fixed deposit against which it provides the loan.

Key benefits of Personal Loans against Fixed Deposits

The reason for the growing popularity of this option as against traditional unsecured personal loans is the host of added benefits that come with such a loan.

• The interest rates available for personal loans against fixed deposits are lesser than conventional personal loans. The rates for such loans are generally 1 to 2% higher than the rates being paid by the bank for the fixed deposit.
• Such a loan does not require one to liquidate the FD which in that case lesser interest for being broken midway. This way the asset remains while the immediate financial requirements are met.
• The tenure for the personal loans against fixed deposits normally extends up to the maturity of the fixed deposits.
• The processing is also hassle free as the bank where you already have the fixed deposit will itself provide the personal loan against it.
• There is no prepayment penalties associated with these kinds of loans which gives the borrower the freedom to repay whenever his cash flow situation improves.

The Procedure for Personal Loans against Fixed Deposits

The process involved in availing a personal loan against fixed deposits is relatively simple and fast. In this case the fixed deposit will have to be hypothecated to the bank. At the time of the application the following documents will have to be submitted to the bank.

• Demand Promissory Note
• Pledge/lien Letter
• Loan Documents
• Overdraft Agreement
• Application Form
• Deposit Receipt
• Signed Receipt

There is a small processing fees that will be charged by the bank for the approval of this loan and the loan will be sanctioned in a very small time frame.

However one must carefully analyze the actual losses that will be accrued by taking a loan against the fixed deposit at an early stage of the deposit as compared to taking it against a deposit that is nearing maturity. In most cases it is preferable to take loan against deposits that are closer to maturity as the amount due will be more in this case. But at the same time one must understand that the tenure available for repayment reduces in this case. Weighing the pros and cons of both the situations the borrower will have to decide for himself which is the most advantageous situation for him. However in all cases taking a personal loan against fixed deposit is always better than a high interest rate pure personal loan.

Gold has fallen 30% from its highs of $ 1920.30 and any fall below 20% gets categorized as a bear market. The last week witnessed a sharp drop on concerns of countries like Cyprus trying to liquidate its gold holdings to fund its bailout package. The legendary investor George Soros also cut his holdings in SPDR Gold Trust, by a whopping 55% last quarter. SPDR is the world’s largest exchange traded gold fund. All this could make any investor in gold quite unsure of his next move.

Should you buy more now that the prices have softened, hold your existing investment or sell your investments? Before making any decision, two important things to be taken into account are the fundamentals of gold in the days to come and your investment horizon.

First, let’s look at the fundamentals of gold

The demand story: Demand for gold comes in from many quarters, main ones being the investments in ETFs, jewelry and for industrial usage. With the fall in prices, what would be he impact on these factors? Gold as an investment found flavor globally, because of weakening economic scenario. The yellow metal provided an insurance against the fall of other classes of assets like equities etc. However, as US economy showed signs of recovery, investments in gold ETFs have come down. Higher prices also pinched the pockets of industrial and jewelry users and the usage reduced. With prices receding, the users of gold should be seen making some purchases. It is said that increased purchases in this category should be able to make up for losses seen in the investment front.

Action by Central Banks: Gold is held as a reserve by many central banks. The US greenback lost its value in the recent past forcing many banks to channel their holding towards gold, as one of its foreign currency reserves. Cyprus was forced to liquidate a small amount of its gold reserve to finance its bailout package. Many countries like Portugal, Ireland, and Greece etc may also follow suit, if required. The recent drop was a result of action by Cyprus, accordingly prices may see a further slide if any more countries take this route.

The rupee factor: Indian gold investors have an additional factor to worry about, the value of rupee in comparison to the dollar. The Indian Rupee has fallen to the level of Rs 53 levels, increasing the cost of buying gold. At the same time, those holding gold may see higher returns. The percentage of fall in dollar and rupee terms may not be same all the time due to the interplay of rupee.

After assessing the fundamentals of the metal, now evaluate how well it suits your investment criteria. Always have a time horizon for your investment.

Gold may have been a part of your portfolio for various reasons. It could be as a hedge against a fall in prices of other assets, as an investment for jewelry for special purpose, for speculation or as a hedge against inflation. Investment for any reason needs to be with a time horizon.

For anyone with a speculative outlook for a short term and a profit-booking motive, the time may be ripe for selling and booking profits, provided you invested at the right time. However, someone with a longer horizon need not make this move. Anyone investing with a disciplined approach and a longer horizon, phases of downtrend may, in fact help in bringing the overall cost down. Any asset class will have periods of ups and downs and this presents an excellent opportunity for cost averaging.

Also take a decision on the total amount of gold in your portfolio. Having an excess allocation towards gold will cause an imbalance in the returns, in case of events like the current one. Gold should ideally act, as insurance and allocation towards insurance ideally should not be more than 10% of the portfolio value. Hence, make small allocation towards gold, so that it provides succor in times of distress in other assets.

If you are looking to accumulate gold for some special occasion like your children’s wedding etc, you can definitely continue your purchases. If the wedding is somewhere around the corner, then needless to say, you can go ahead and make some purchases. In fact consistent buying in gold since the drop has already brought back the prices to above $1400 levels.

Mode of investments also matters, while e-gold and ETFs may prove to be tax friendly. Investments in physical gold like bars or coins comes in with its own set of risks, like storage and security, making charges when converted into jewelry or its resale value.

As in any other asset class, diversification and consistency is the key. Ad hoc investments would not bring in any significant results and may fail at times too. Do not be swayed by the rumors or negative sentiments floating around and keep up your investments.

For the last twelve years Gold had shown a massive build on interest. The bull cycle was extended so much that it looked ballooning in 2013. The corrective wave has approached the bullions this year and it is so hard for many to believe that Gold can correct so steeply also. Indian Gold prices have slipped below Rs 30000 and still counting on the lower side. The world over bearish bets on Gold has pressed the need to think that whether right time has come to revisit Gold in your kitty. Here we have come up with six points which shows that yes the time has come to book some profits in Gold investments!

Investment doesn’t disallow profits:

The first important thing that an investor must understand is that in no way investments disallows profits. That means that if you had invested in Gold you can also book profits provided you want to book it. Some investors are confused about the timing of booking profits and when they miss the train they become frustrated. The approach should be to chalk out what kind of returns you expected from your Gold investment. If the returns have been achieved book profits and sit on cash. Wait for new investment alternatives or if you are die hard Gold fan wait for better levels to emerge before you can reenter the markets.

Confidence in risk takers:

Ever since there are calls that the Federal Reserve will end its famous quantitative easing program risk bearers look more charged at the state of US economy. The US economy has entered a recovering mode and  this has lend sharp interest favoring local currency Dollar and a move away from traditional safe haven investments like Gold. US equity markets are getting better indicating that money is now being poured into riskier asset classes and away from bullions that had an extended rally over a decade. The confidence of risk takers means that Gold can see some more days of grim and prices can correct further down. In case, you are an investor that is looking for the right time to exit this metal, it is now.

Indian Gold demand dips:

Indian Gold demand has dipped considerably lower last year and the measures by government to bring down Gold imports are expected to affect the metal further. Indian Gold demand is important not only from a domestic point of view but also the international angle as the country is the biggest consumer of Gold in the world. In a bid to control Current Account Deficit, Indian government raised the import duty on Gold to 6 percent. Indian Gold demand declined by 12 percent to 864.2 tonnes in 2012. The demand is expected to remain in this range in the coming year as well on the back of strong measures by the government.

Consumer end demand is missing:

The central banks of Russia and South Korea are still buying Gold and improving their reserves, but the fact is that consumer centric demand in Gold is missing. Higher prices have been the sole driver for lower demand of Gold by consumers. The Chinese Central Bank has already indicated that it is in no mood to increase its Gold reserves further. In such scenario, buying from Russia and South Korea doesn’t seem enough to mitigate the loss of demand from other segments.

Pricing of Gold:

One reason given at the time of Gold rally was its undervaluation. With the passage of multi years of rally on a trout this assumption looks jaded. Compared to other metals like Copper, Crude Oil Gold looks a bit overvalued. Demand and supply determine the value of a particular commodity and if the demand is missing Gold is expected to come down to meet the aspirations of the buyer’s prices. The purchasing power of consumers and prices of Gold got mismatched after it crossed 32k levels in Indian markets and almost $ 1800 per troy ounce levels in International spot markets. The correction in Gold prices is necessary to decrease the gap between the two. Therefore reassessment of a portfolio is not a bad idea for you.

Exchange Traded ETFs Selling:

An investor should always use his rationale in deciding on his portfolio but that doesn’t mean that one can ignore the trend going on in the markets. The trend is that heavy outflows of Gold are going on by Gold ETFs. The outflows are a sign that the big funds are booking profits in Gold as they think that it is the right time to become cash rich. World billionaires like George Soros recently slashed its holdings of Gold. Investors should not blindly follow the decisions made by others but fund selling and trend should not be ignored. Selling in ETFs is due to the confidence in US economic recovery that once led investments pour into Gold at the time of the housing crisis.

It is therefore essential that you recheck the objective of your investment in Gold. If your objective was to earn decent returns this is the time to churn money. If it was to keep adding Gold in your assortment do that after some time as the prices can move further down from here. If you were a long term investor worried with what is happening in the world, stay cautious and start following the trend.

There is a famous saying “A friend in need is friend indeed”. If we talk in financial terms this statement can be rephrased as “A financial asset in need is a financial asset indeed”. Normally every individual investor builds a portfolio using a lot of financial assets but is he aware which option in the lot prevents him from drowning in times of economic crisis such as currency failure, inflation, and stock market crash? If you are a serious investor and love your hard earned money, you already know the answer i.e. investing in Gold.

Gold as an investment option has the same property as it has as a precious metal i.e. it’s durable. No other investment option endures the test of time so well and hence it’s universally accepted as one of the best financial assets to possess in rough economic conditions. Not only investors but even nations try to hoard gold in the time of crisis. Very recently, there were reports on how China and India bought tons of gold to hedge against the dollar risk. In this article let’s find out what are the investment options available through which an individual investor can take exposure together with exploring the pros and cons of investing in them.

Jewelry:

Investment rationale

Indians invest in jewelry for multiple reasons. They can use it for marriage, wear for parties, and get it liquidated in the time of crisis, though we hardly see anybody liquidating it unless extremely urgent. Moreover, accumulating jewellery is a sort of tradition and hence many families still find it the best way to invest in Gold.

Gold Coins:

Investment rationale

Since most of the gold coins are sold by banks, the purity is guaranteed unlike jewelry where you have to rely on your known jeweler. Investors who do not want to take any chance but still want to invest in physical gold go for gold coins.

Gold Bars:

Investment rationale

If you are comfortable with storage and large initial investment amount, this can be one of the best options as loss in terms of premium/discount is the least. Issues of fake purchases can be taken care if you buy from an authentic source.

Gold ETFs:

Investment rationale

These are relatively new options and are not as popular as physical Gold. Investors who usually invest using demat account are aware of this option. They provide very easy access to gold investment without having the burden of physically owning it.

Gold Mining Stocks:

Investment rationale

It’s one of the most creative investment options and hence requires a lot of careful research before investment. If you are a seasoned investor and enjoy making your hands dirty this can be an option for you as you can strike gold if you choose the right one.

Conclusion:

Gold reserves are held in significant quantity by many nations and they are synonymous to money. Gold investment acts as the best shield against economic downturn and crisis situation, so it’s a wise decision to take exposure via any of the routes suggested above, which suits you the best.

Finance Companies Face Reduced Margins Because of Steep Decline in Gold Prices

The companies offering finance options such as Gold Loans, are witnessing reduced collateral as a result of the dramatic reduction in the pricing of the precious metal

A lot of the top financial companies have jumped into the gold loan segment in the recent past, in order to capitalize on the large margins that the segment offers. What they hadn’t accounted for though, was such a drastic change in the cost of the precious metal, and this has led to these companies fishing in troubled waters. The pricing of Gold has come down by over 20%, which has rendered the margins for these organizations insufficient and created a situation of uncertainty.

The lenders utilizing gold as a security for lending capital usually keep a margin of about 25 per cent, which accounts for the fluctuation in the pricing of the metal.  This can be understood in the form that if a bank keeps gold worth Rs 100 as the security, it will lend Rs 75 against it, but with the gold prices falling by almost 25per cent, the collateral has almost completely diminished This is the reason why these finance companies are facing a difficult situation, where they could incur losses, if the user delays repayment, because of the declined prices.

The leaders from the industry though, are upbeat about the state of the market, by maintaining that a majority of the loans are short term ones ranging from 4-6 months, and are considering the situation to be over hyped. The consumer usually cannot delay the redeeming of their security in a short term loan, which leads to the firms claiming a sound state for their collateral, and thus helping organizations maintain a bullish stance on the sector.

It is often quoted that regular savings, even if they are small, help in building a huge corpus over a long period of time. The Systematic Investment Plan (popularly called SIP) is a way of investing regularly in mutual funds. The investor invests a fixed amount at regular intervals for a fixed tenure, to be chosen at the time of investment. The periodicity of investment depends on the mutual fund. Most mutual funds allow SIPs on a monthly basis, while there are some funds which allow SIPs even on a quarterly basis.  The NAV prevailing on the date of your investment every month determines the units to be allotted. A high NAV results in fewer units allotted and vice versa.

How does an SIP work?

Suppose you have Rs. 60,000/- and wish to invest this in a mutual fund. Let’s assume that the Sensex at the time of your decision is at 18000. Let’s look at the following two cases:

Case 1: You invest this amount as a lump sum in an equity mutual fund, which has an NAV of Rs. 60 on 20^th January. Thus, you own 1000 units of the equity mutual fund.

Case 2: Instead of investing the entire amount in one shot, you decide to invest in an equity mutual fund in the form of a SIP every month. Let’s say you invest Rs. 5,000 per month for the next 12 months, starting 20^th January. Assume that the markets are highly volatile over the next 12 months, resulting in the NAV fluctuating every month. This is how your investment will look like:

You own 1006.17 units of the mutual fund at the end of 12 investments purchased at an average cost of Rs.59.63 per unit.

In both the cases, the total amount invested is the same, at Rs. 60,000. But you hold more units in Case 2 compared to Case 1. This is because, the fluctuation in NAV of the fund due to volatile markets resulted in some months witnessing an NAV lower than Rs. 60 (which is the NAV under Case 1). As a result of this, you were allotted more units during these months, compared to the months where the NAV was higher than Rs. 60. Consequently, you had more units under Case 2.

The main question to be addressed is if this wonder of SIP works in all scenarios. The answer is that it does not necessarily work in your favour all the time. So, should you opt for the SIP mode of investment or not? Let’s look at the benefits and drawbacks of SIP investing before answering this question.

Benefits of SIP

• Disciplined investments: When you save and invest regularly, you become a disciplined investor. As there is a forced commitment towards investment, you also watch out and cut back unnecessary expenses during the month.
• Large investments not needed: Under the SIP route, you can invest even small amounts, which can be as low as Rs.500 per month. As the investments are small and there is no need to set aside a lumpsum, it is easier on your wallet.
• Rupee cost averaging: When you invest through SIPs, you get more units when the NAV is low and fewer units when the NAV is high. As a result, your cost per unit is lower than the simple average NAV during the period. This is known as rupee cost averaging, which is beneficial to an investor.
• No need to time markets: A retail investor is generally unsure of market movements, and is unable to benefit from such moves. He may also not have the time to monitor his investments regularly. In such cases, SIP investing helps you in averaging costs and reduces risk related to lumpsum investments.

Drawbacks of SIP

• Not suitable in a Bull market: An SIP will result in a higher average cost and fewer units compared to a lump sum investment if there is a bull phase in the equity markets which results in higher NAVs every month.
• Lock-in period in ELSS funds: ELSS funds have a lock-in of 3 years from the date of investment. An SIP investment entails each of your investments being locked in separately for 3 yrs from the date of the respective investment.

Given the positives and negatives, when should you opt for an SIP investment?

You can benefit from SIPs only if you anticipate a bear run in the market or volatile markets during the proposed tenure of investment. SIPs should not be selected if markets are expected to be bullish, as they will result in lower returns compared to a lump sum investment.

Metropolitan cities in India are fast becoming a hub of industrial parks, high rises, residential complexes, sprawling malls and huge commercial complexes, which are gradually but steadily transforming their skyline. Commuting on the busy and packed streets of Delhi, Mumbai, Bangalore, Hyderabad, Kolkata or any other Tier I city, shows you brightly colored cranes, rubble, construction and hordes of workers scurrying up and down the towering skyscrapers. This surely urges you to contemplate on the explosion of real estate sector in India.

Is it a Mirage?

How real is the influx of investments by speculative and long term profit makers? Are the commitments by oversized private equity firms, overseas investors and domestic financial institutions, adding to the hype and frenzy created in the concrete world of real estate?

Astute watchers in the property sector feel that the bubble is not as big as it seems. According to prominent investors, brokerage firms and property developers, there are certain factors which are failing to add the right tempering to the real estate markets in India.

• It is quite evident that the funds brought in by the foreign investors are only a small percentage of the promised amounts.
• Price resistance from real estate purchasers and the soaring prices of land are cutting deeply into the investor’s margins, making real estate ventures less lucrative than expected.
• Bureaucratic lethargy coupled with red tape, opaqueness in regulations and the non presence of insurance title, prove to be other concerning factors for real estate investors.

Investor Sentiments

According to reports by Cushman and Wakefield, there has been a 15 percent drop in the valuation of private equity deals in the first nine months of 2012. Their observations are based on the following:

• Investors are putting their money in residential deals rather than commercial ones.
• PE players are showing an increasing preference towards the metros rather than Class II cities in the hope of better liquidity and higher returns.
• The investments are being made on the basis of the assumption that real estate prices will not change in the near future.
• Investors are looking towards projects which have all approvals and licenses in place and are expected to have short cycles. The assurance of quick and stable returns, is guiding their purchase and investment decisions.
• They are also having a greater say in the prices of projects. This is decreasing the scope for automatic price correction or defining of prices by the developers.

Current Scenario

The current situation is raising fears of an overheated economy and real estate bubble. This has inspired the Central banks to initiate a lender cutback on the amounts sanctioned for real estate loans. The act has caused an upward escalation in the rates of interest and lowered the attractiveness of home financing for consumers. As a result, the cost of home and office rentals along with their purchase price has ended up touching unprecedented heights.

So where does this scenario leave the investors and property purchasers?

• A majority of Indian real estate companies are privately held and do not disclose their financial health to investors and buyers. The inability to read the right signals in the absence of readily available information on products such as retail outlets, industrial property, residential apartments and offices, is causing grave concerns in the minds of the investors.
• Rumors related to the misfiring of a large deal or reports of distress sales by prominent property developers, is further adding to the confusion in investor sentiments.

The prices of property in the Indian markets are being stoked by the following factors:

• Numerous speculative deals taking place in the hope of making faster and better gains
• The rising cost of construction in respect to raw  material, labor and other costs
• An unexpected hike in the excise prices
• Increase in service tax rates
• The escalation in land prices

The present scenario in the Indian real estate markets is raising concerns with regards to future profit margins for foreign investors. Contrary to the figures in the past two years, when increasing valuation in property yielded returns as high as 30% -40% on investments, the expected returns in the days to come are not expected to go higher than 15%-20%.

Foreign investors are now looking towards other emerging markets such as those of Latin America and Eastern Europe.

Future Trends

According to analysts, this is a good time for purchasing real estate intended for long term investment and end use. The cyclical nature of the markets is expected to push up the residential property rates in the next three years. If the investment horizon is greater than this period then it makes good business sense to invest in property in metros and other fast developing cities.

The decision to purchase property in the emerging areas should be backed by a complete analysis of the demand-supply forecasts and infrastructure plans for the region. As far as capital appreciation and rental yields are concerned, , mid range houses are expected to provide better returns than luxury apartments or premium property purchased at discounted prices.

A chit fund is a savings cum borrowings scheme, wherein a few people (known as members or subscribers) come together and invest a fixed amount every month for a fixed period. While the concept of chit funds has been very popular in South India for several decades, other states in the country also have chit fund concepts today.

Various State and Central regulations regulate chit funds in India. At the central level, the Chit Funds Act 1982 governs chit funds. Some states also have state-level laws. Chit funds have been associated with fraudulence for the past couple of decades. Many fraudulent chit funds have closed down. Nevertheless, a few large chit companies have retained their popularity among people.

Let’s understand more on chit funds:

How does a chit fund work?

In a chit fund, the number of months for which the investment is made is the same as the number of subscribers in the scheme. Every subscriber gets a turn to take the total amount collected in a month; this means, in every month, one subscriber will get the collected amount. The subscriber to get the money will be decided based on a bidding system. Once a subscriber gets his turn, he is not allowed to participate in the bidding again. Generally, those who are in need of money in a particular month participate in the bidding, and the subscriber with the lowest bid is allowed to take the amount. The chit fund scheme is managed by one of the members, who is known as the Foreman. He is responsible for collecting the subscription amount from the subscribers, recording details of members and conducting the auctions. For these duties, he is paid a fee, which is generally 5% of the amount collected. The Foreman’s fee is reduced from the amount paid to the subscriber who wins the bid. Any extra amount from the monthly collections is distributed equally among all the subscribers.

Illustration: Let’s assume there is a chit fund with 10 members contributing Rs. 3,000 each per month for 10 months. The total monthly collection in this chit fund is Rs. 30,000. Suppose in the first month, there are 2 members who need funds, who participate in the bidding. One member bids for Rs. 27,000 while the other member bids for Rs. 26,000. The second member becomes eligible to draw the money for the month as his bid is lower than the first member’s bid. If there is more than one member bidding for the same amount, which happens to be the lowest amount, a lottery is drawn to determine which of the members will be eligible for withdrawing the amount. In this illustration, the second member can withdraw Rs. 24,500 from the total collected amount (Rs. 26,000 – Foreman’s fee of Rs. 1,500 (which is 5% of Rs. 30,000)). The remaining Rs. 4,000 (Rs. 30,000- Rs. 26,000) is distributed equally among all the members, ie: Rs. 400 each. So in effect, during the first month, each member contributes only Rs. 2,600.

In the second month, another member is given a chance to withdraw the bulk amount. Suppose this member bids for Rs. 28,000, the remaining Rs. 2,000 is divided among the members, ie: Rs. 200 per member. This process is repeated every month for a total of 10 months. On the completion of 10 months period, each subscriber would have withdrawn a bulk amount once, in addition to getting the monthly nominal amount. This monthly amount works like a dividend for the money invested. Rules for determining which member takes the bulk amount every month and also the withdrawal amount vary from one chit fund to another in different states.

Should you invest in Chit Funds?

This question can be answered from two angles – from safety viewpoint and investment viewpoint. In India, there are both large chit fund companies like Shriram Chits and Margadasi Chit Funds as well as several small unregistered ones. Registered funds are regulated and governed by law; but unregistered chit funds are not bound by any regulations. When fraudulent chit funds closed shop, several investors lost their hard earned money. It is therefore not advisable to invest in such unregistered chit funds. Further, it is not advisable to invest in chit funds where the other members are unknown to you. Thus, the key to investing in chit funds is in choosing the right one.

However, from an investment viewpoint, a chit fund does not promise returns for an investor. It is not possible to calculate exact returns from a chit fund as this depends on the level of emergency of members for funds, and this is a highly variable factor. That said, a chit fund is a good saving instrument for small investors and brings about a discipline in saving regularly. It is also useful in getting funds when in an emergency. As chit funds are essentially not investment products, you must consider investing in them only if you foresee a need for funds in the near future, which you may not be able to get from your bank, and thus start saving towards this need in a chit fund.

Indian investors always had a fascination towards precious metals and stones owing to their hedging ability against the rising inflation and economic uncertainties. While investing in gold and silver has been going on, another investment avenue that is blooming since past few years is the ‘noble metal’ or platinum. Although platinum has a very short financial trading history associated with it compared to other precious metals, it is slowly becoming one of the favorite investment platform for Indian investors as well. Investing in platinum not only helps in diversifying investment portfolio, but also in providing a smart long term investment strategy.

Platinum is available in the physical form as collectable coins while financial options are available globally including active trade in the National Spot exchange in India.

Platinum Vs Gold:

Less than a decade ago platinum prices were exponentially high and were nearly 150% the price of gold. With an extended bull run in gold coupled with increasing global recession in platinum manufacturing countries as well as industrial sectors, platinum prices have come down to nearly the same level as gold.  As of first week of November, platinum was trading at Rs. 3,256 per gram compared to Rs. 3,134 per gram for gold. According to industry experts as well as financial analysts, platinum is expected to rally around these levels for the next few months till economic recovery is back on track. The existing low prices of platinum however offer great investment opportunities to the smart investor to jump on the investment bandwagon.

Platinum Vs Diamonds:

Platinum and diamonds have always been on the radar of the rich and famous. With Gold prices reaching astronomical highs, more and more Indian investors are now looking at diamonds and platinum as an equally lucrative investment opportunity. Diamonds are available in physical form and not every investor is aware of the cut and clarity in the absence of hallmarked diamonds which are few and far in between. Platinum on the other hand has no such problems and can be traded on NSEL in electronic form while physical delivery is controlled by Platinum guild India.

Investment Opportunities in Platinum:

With the rising popularity and the bright future of platinum as an investment vehicle, the National Spot Exchange (NSEL) e-Platinum launched e-platinum trading platform under its e-Series products in April 2012.

E-Platinum:

The e-platinum platform has been slowly gaining popularity amongst the investors. It opens up opportunity for the investors to buy units of Platinum electronically in the multiples of 1 gram with the option to sell, retain or take physical delivery through the platform.  Just like e-gold and e-silver, e-platinum also allows investors to avail physical delivery of Platinum in various denominations usually in granules form imported from London platinum and palladium market (LPPM) approved suppliers. As of now physical delivery of platinum is limited to Delhi, Mumbai, Jaipur and Hyderabad but more cities are being added periodically by NSEL.

Bars and Coins:

For those who want to store the metal in its physical form, Platinum bars, coins and bullions are available across various centers including nationalized and private banks as well as authorized dealers. Physical delivery of platinum is available in various weights including 1 gram to 100 grams with a purity of 99.95%. Since physical buying of platinum is still in its nascent stage in India, individuals must check with their vendors for authenticity certificates and buyback deductions.

Platinum Futures Contract:

Platinum can also be invested in the Futures market as Multi Commodity Exchange (MCX) allows buying facilities for Platinum Futures Contract (1 gram). Since futures market is highly volatile and has inherent risks attached, such investment avenues are only recommended for the advanced traders and investors.

Future Outlook for Platinum:

Even though platinum prices may appear bearish for now, the price of platinum is expected to rise in the near future as platinum jewelry markets get more evolved. In fact The Mineral Exploration and Development Report in its 12th Five Year Plan Period has projected that platinum demand in India will reach 80 tons by the year 2017. Also with the increase on strength of the automobile industry globally, platinum may well retain its high financial strength and offer a perfect investment tool for the serious investors.

Analysts and financial experts may have a different outlook on the short term prospects of platinum but most agree that with the low costs of the metal, this is a perfect time to invest in e-Platinum in demat form which emulates the price of physical platinum in the precious metal market.