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| September 01, 2017 |
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Impact 
Recently, a committee of financial regulators strongly suggested that the Government make producing the PAN compulsory for any form of gold purchases. The panel believes this initiative can immensely help plug loopholes that tax evaders have exploited for years. As per the present rules, one has to provide PAN only for purchases above Rs 2 lakh.
Concurrently, the Government decided to appoint Directorate General of Goods and Service Tax Intelligence—the newly established GST intelligent department as the regulator for the gems and jewellery industry to handle money laundering cases. Jewellers with an annual turnover above Rs 2 crore in a financial year will come under the purview of the Prevention of Money Laundering Act, 2002 (PMLA, 2002). And as per the Government notification issued on August 23, 2017, these changes are applicable with immediate effect.
What will the impact of this be on gold demand?
Jewellers will have to maintain Know Your Customer (KYC) records for all cash sales above Rs 50,000. So, if you as a customer don’t have a PAN card and your income is below the taxable limits, Form 60 (a declaration) for purchases above Rs 50,000 will have to be filled.
Now instead of welcoming these moves, jewellers and industry bodies are expressing their disappointment cautiously, without overtly criticising the Government initiatives. After all, they have to be politically correct even if they are unhappy with the efforts; so this is understandable. The tone of their argument is rural population buys gold as the security for future. And if they are burdened with unnecessary paperwork, they will be discouraged to invest in gold and eventually this may affect our business. Nearly 60% of jewellery sales is from the rural areas, and as per industry players, many of their rural customers don’t have PAN numbers. “We will lose our customer base, as many regular customers do not have PAN cards", this reaction of a jeweller is illustrative, isn’t it?
But the main reason for their discomfort is different. They’ve had a free run; and now, they can’t utilise loopholes in the laws to carry out unscrupulous practices.
“Henceforth jewellers will have to be careful about dealing in cash. Since PAN is now linked to Aadhaar, dealers will find it difficult to quote the wrong PAN card number”, a few industry insiders told the media on the condition of anonymity.
Why collecting PAN details could be a pain for the industry, or even getting Form 60 filled for that matter?
Majority of rural masses earn agricultural income, which is tax-free. So why would they have any problem in revealing their PAN number to authorities while buying gold. And let’s assume, many of them won’t have a PAN number and will have to fill up Form 60, but how many of them will buy gold in excess of Rs 50,000 at one go? Even with the assumption that a few make purchases over Rs 50,000, then why would they have a problem in complying with the law? Now make no mistake; the provisions of PLMA, 2002, will be applicable only to the jewellers with a turnover of Rs 2 crore. How many of them operating in rural areas will have a turnover in excess of the threshold limit?
Going by the reaction of the industry players, it seems the Government has hit the nail on the head. Making PAN compulsory for all gold purchases is still a recommendation, so why jump to conclusions right away.
Media sources believe, massive gold purchases happened during the phase of demonetisation have promoted the Government to take stern actions with immediate effects. But have we forgotten many jewellers were open overnight on November 08, 2016 to covert cash into gold.
In PersonalFN’s view, heightened KYC norms and the appointment of a regulator to deal with money laundering cases in the gems and jewellery industry are the follow-through actions to unearth black money. The Income tax department has conducted a series of raids on jewellers who had provided a backdoor exit to black money during demonetisation.
Further, the Government seems to be going all out for black money prevention. But in this fight, we don’t see that facilitators of black money creation in the gems and jewellery sector are soon going to admit their defeat.
For now, they are in a fear-mongering mode, but they would continue to draw their defence arguments subtly.
In the interim, gold smuggling will rise, simply because gold smugglers know India’s insatiable appetite to own gold for a variety of reasons. So, rural masses would be put off by the new KYC rules and find new means of sourcing/owing gold.
If money laundering activities were primarily driving the gold demand, then there’s a likely slowdown in the industry. The question is: Shall we contest improved compliance or challenge the intent of tax dodgers?
Tax compliant individuals, like you, need not worry at all. Make it a point to allocate 10% to 15% of your entire portfolio in gold. At present, here are their various reasons to own the precious yellow metal:
- Untested policies of Donald Trump (doubts whether Trump administration stimulus measure would pump growth),
- On-going process of ‘Brexit’,
- Upcoming elections in the Germany, Italy,
- China's weak macroeconomic variables,
- India economic growth has hit a rough patch post-demonetisation, and
- There are geopolitical tensions.
Even then central banks across the globe aren’t taking any chances sensing the systemic risk. Most have increased their gold reserves, while many others are maintaining their positions. The onset of festive season would be reassuring for gold demand.
Gold is not merely a commodity, but also an effective portfolio diversifier and a hedge. In times of economic uncertainty, gold demonstrates its trait of being a safe haven ––a store of value. The long-term secular uptrend exhibited by gold, is something that invites attention and highlights the importance of owning gold in one’s portfolio with a longer investment horizon.
So, be smart investor and own some gold. Opt for gold ETF or gold saving funds which are smart ways to own gold.
When investing money in equity, take the Systematic Investment Plan (SIP) route because it is convenience, and helps to deal with market volatility through rupee-cost averaging, plus powers your portfolio with the benefit of compounding. But, it is pertinent to note that not all equity mutual funds may be investment worthy to start an SIP. Hence, you need to narrow down to a list of funds that have performed remarkably well under SIP.
Backed by strong research-driven processes, PersonalFN will soon publish a research report of mutual funds that are optimised for SIP investments. Stay tuned to know more!
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Impact
The Securities and Exchange Board of India (SEBI) has been working hard to safeguard investors’ interest. The most recent issue on its agenda seems to be the merger of similar schemes with identical investment objectives and portfolio preferences. SEBI has made earnest requests to mutual fund houses in this regard at various platforms in the past. But mutual fund houses have continued to turn a deaf ear to these informal requests. On the contrary, they continued to launch New Fund Offers (NFOs) and grow their Assets Under Management (AUM) in the same old lackadaisical way.
Taking notice of this blatant disregard by the industry, SEBI has taken out its rule book to reprimand mutual fund houses. As per the latest media reports, the capital market regulator is likely to introduce rules making it mandatory for mutual fund houses to merge schemes with similar features. "Mutual funds have not responded to SEBI’s persuasion for years. So, now it has decided to come out with the rules," a person familiar with the development said in an informal conversation with the media.
To read more about this story and Personal FN’s views over it, please click here.
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Impact
Mutual fund houses, distributors, and investment advisers have well understood the role of technology to make life simpler.
About four years ago, investing in mutual funds was a cumbersome task, starting from the very first step of getting Know Your Customer (KYC) compliant. Investors found complying with KYC burdensome and a rather complex process, involving a good amount of paperwork. Hence, distributors were the preferred route, as they helped you right from KYC to investment to redemptions.
In 2013, after the Securities and Exchange Board of India (SEBI) asked fund houses to introduce Direct Plans that charged a lower fee, many fund houses either launched or enhanced their online investing portals to make it user-friendly for direct investors. In 2015, for the first time e-KYC was introduced by a direct to investor fund house. Eventually, other fund houses jumped on the bandwagon.
To read more about this story and Personal FN’s views over it, please click here.
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Impact
Financial inclusion is a buzzword these days.
To look into the various facets of household finance across India and formulate better policies for the financial services industry, the RBI had appointed a Committee under the chairmanship of Dr Tarun Ramadora—Professor of Financial Economics, Imperial College London. This was done in accordance with the discussions held in the Sub-committee of the Financial Stability and Development Council (FSDC-SC) in April 2016. The Reserve Bank Of India (RBI) , Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority (IRDA) , and Pension Fund Regulatory and Development Authority (PFRDA) sent representations to the panel.
To read more about this story and Personal FN’s views over it, please click here.
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Impact
XYZ Mid-cap Equity Fund delivered a 15% compounded return over five years ending August 28, 2017.
Seems like a good fund, doesn’t it?
Only a few financial products are capable of generating double-digit returns, that too, over a five-year period.
The S&P BSE Sensex delivered a return of 12% compounded over the same period. Superficially, the performance of the mid-cap fund appears better than the widely tracked market index.
But what if we told you that a more appropriate benchmark index—the S&P BSE Mid Cap index—generated a return of 21% over the same period? Now, the scheme’s return of 15% does not sound as impressive.
To read more about this story and Personal FN’s views over it, please click here.
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As you may know, The Employees’ Provident Fund Organisation (EPFO) has been investing in equity markets through Exchange Traded Funds (ETFs) since August 2015. Now it’s considering to credit units of ETFs proportionate to their investments directly to the accounts of subscribers.
While speaking to PTI, Central Provident Fund Commissioner Mr V P Joy said, “We have not taken any return from the ETF and given it to members till now. We have made some system. We are in consultation with the CAG. After that consultation we will take it to CBT for approval and then implement it.”
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Store Of Value: A store of value is any form of wealth that maintains its value without depreciating. Commodities such as gold and other forms of metal are good stores of value, as their shelf lives are essentially perpetual, whereas a good such as milk is a terrible store of value due to its natural process of spoilage. Interest-bearing assets, such as U.S. Treasury bonds, are very good stores of value, because they generate an income of their own and their principal value is backed by a legal contract.
(Source: Investopedia)
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Quote:"The most important quality for an investor is temperament, not intellect." - Warren Buffett
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