The lustre depicted by gold in the last five years with an ascending trend in prices, is attracting many to the precious yellow metal and encouraging them to approach it as an alternative asset class. The situation of debt-overhang in the Euro zone, sovereign rating downgrade, fiscal cliff confronted by the U.S. and dismal global economic growth, has inspired many investors to take refuge under the precious yellow metal due to its trait of being a safe haven and a store of value during uncertain times. Many investors have also been investing through the unorganised sector of the market, in their desire to hold in the physical form (i.e. gold coins / gold bars /jewellery). As per the World Gold Council, 986 tonnes gold, valued at about Rs 3.2 lakh crore at current price, is estimated to have been sold in the country in 2011. Out of this, about 75% gold is sold through unorganised market, with rural and urban market almost evenly divided.

So reckoning the potential in the unorganised market, recently Reliance Money launched a new daily gold accumulation plan - named "Reliance My Gold Plan" under which customers can invest as low as Rs 1,000 per month.

The company, Reliance Money would use the amount invested by you for the purchase of gold on a daily basis, and the total accumulated funds can be redeemed for 24 karat gold coins or jewellery at designated outlets at the end of the investment tenure. The investment tenure which one can opt for can be from a range of 1 year to 15 years. An administration charge of 1.5% would be levied on each subscription while there would be a 2.5% pre-maturity charge as well.

To facilitate the transaction, the company has tied up with 100 approved jewellers for the plan and soon is expected to expand the network to more than 10,000 locations in the next few months. The company, Reliance Money claims that the aforesaid plan is different from schemes offered by unorganised jewellers which only allowed consumers to buy gold at prices prevalent at the end of the tenure.

We are of the view that, "Reliance My Gold Plan" could change the way people accumulate gold. However, an administration of 1.5% and a pre-maturity charge of 2.5% seem to be a deterrent while investors are provided an option to redeem their accumulated funds in the form of gold coins or jewellery.

If one really wants to take refuge under the precious yellow metal, and invest in it over the long-term we recommend that one invest in gold the smart way - i.e. through Gold ETFs (GETFS) due to host of advantages it offers. Also those who want to invest in gold at regular intervals in a systematic manner, can consider gold saving funds (which generally operate like a Fund of Fund (FoF) scheme which invests their corpus into an underlying GETFs), since they offer the SIP mode of investing which provide you with the benefit of rupee-cost averaging and compounding.

Remember holding physical gold, adds on to your holding cost (since you pay a locker rent to stack gold in a bank’s safe vault) and may keep you under the scanner of tax authorities since your physical gold holdings may attract wealth tax.

At PersonalFN, we recommend that you should have a minimum of 10%-20% allocation to gold the smart way, and invest in it with a long term perspective with a time horizon of 10 to 20 years.

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shredhar@cbn.net.id Dec 02, 2012 Most urban households having gold in some from or other already posses Bank Lockers the Locker rent is not a deterrent ; yes the tax issue exists, but for small gold buyers it may not be a problem.

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