Mahesh Ramachandran is the Co-founder of Common-Wealth Inclusive Growth Services, with operations across 30,000 locations in India, focused on Financial Inclusion and Financial Literacy. Mahesh is also the partner of Pontaq, a cross border innovation fund head quartered in UK. For more information visit www.mahesh.click
You could be a millennial, started working just a few years ago, earning Rs 25,000 to Rs 40,000. You could be a middle aged working couple, diligently saving for your children’s future, earning Rs 40,000 to Rs 60,000. Or you could be an elite professional earning between Rs 75,000 to Rs 2,00,000. We all have one thing in common. We all belong to the middle class one way or the other.
When it comes to savings and investment, we all face the same problems.
Secure long term products such as PPF, NPS, Insurance and Post Office / Government Schemes do not provide easy liquidity - meaning, the flexibility to partially withdraw the amount of our choice, at any time of our choice.
The returns from these zero risk - low risk products, are not adequate enough to protect our wealth from erosion in purchasing power. And real growth is not even possible.
It is generally believed that Equity and Mutual Funds give better returns than other options, particularly over the long term. But when you compare for the period 2000 to 2020, NIFTY50 index grew from 1500 to 12000, while Gold grew from Rs 430/g to Rs 5200/g. Gold has performed 50% better. So investing in equities and mutual funds - is it worth the risk, compared to investing in Gold?
RBI Gold bond, which is denominated in Gold grams, promises better risk free growth, but has a 5-8 year lock-in period. We can invest bulk amounts once in 2-3 months whenever their issue opens for 4 days. (Min 1 gram). There is no easy way to put some monthly amount in to this. If you need the money before the maturity date, you have to sell it in the secondary market, often at a heavy discount from the market price of Gold, because there is not enough liquidity for this in the secondary market.
That brings us to the option of PHYSICAL GOLD, which is not a financial product, but a real asset. Next to land and property, this is one asset that gives risk free real growth over medium to long term. if I had invested Rs 10000 in PPF and Rs 1000 in Gold, in the year 2000 - PPF would have grown to Rs 60000 by 2020, whereas Gold would have appreciated to more than Rs 120000. A purchasing power parity test using the price of paddy (rice) between 2000 and 2020, shows that Gold outperformed PPF by more than 200% even on real terms. Similarly Rs 10000 invested in Nifty50 Index in 2000, would have become Rs 75000 in 2020, whereas Gold would have grown to Rs 120000.
Theoretically Gold could solve both our problems :
Easy liquidity as we can sell part of our stock whenever we want
Protection from erosion in purchasing power along with risk free robust growth over the long term.
In addition to the above two, what I really love about GOLD, which no other “Easy-To-Withdraw” product has, is its emotional value and the cultural significance we attach to it.
We would never sell physical gold for ordinary expenses, thereby protecting it from our own impulsive and aspirational spending habits.
But investing in physical GOLD is not very easy.
Buying 22 Kt Jewellery for regular use is OK. But we can’t use it for savings or investment purposes, because a significant part of our money goes in VA, Making Charges, Wastage, Stone Charges, Melting Loss etc. and the quality and purity varies widely.
Chit Schemes run by Jewellery shops cannot be carried forward beyond 11 months, and whatever little quantity of grams we could accumulate in those 11 months, we have to buy Jewellery and that too, only from the same shop. These Chit Schemes also scare me, because they are unsecured and unregulated. They don't give a GST bill for our monthly instalment and the shop uses our funds to rotate as working capital in their own business.
Stock exchange traded GOLD ETFs are another option. GOLD ETFs in India are not backed by 100% physical gold. Only 50% is invested in Physical Gold and balance 50% of the funds are invested in Financial Derivatives. From the perspective of long term savings, it is very risky. It is no way comparable in terms of security, to Physical Gold in our locker.
Physical Gold at MCX
Multi-Commodities-Exchange actually has a provision to buy physical GOLD at market prices, store it safely in an exchange controlled locker, and sell it whenever I want. The exchange ensures that each Coin / Bar of Gold is certified for 999 purity. It is traceable with serial numbers and it is really stored there in the Warehouse locker controlled and regulated by the Exchange system.
But MCX Brokers only encourage whole sale traders (like milliGOLD) and are not very favourable towards retail customers (like salaried employees). Another problem I found out in going directly to MCX Brokers, was this. I could not set up a monthly auto-debit SIP. Whatever the amount I may want to invest - 2000 PM / 4000 PM / 8000 PM / 10000 PM, it will always have some fractional grams in it and that makes it more complicated as physical deliveries to MCX warehouse lockers can be done only in bars like 8 grams, 100 grams, 1 Kg etc.
That is where a Fin-Tech App like milliGOLD makes it easy and convenient for retail customers like us.
Investing in Gold through milliGOLD App
I can set up auto-debit monthly plan, for as low as Rs 1000 PM. Can modify the amount and change my plan anytime.
Whenever I have some excess money, I can make additional ad-hoc payments to my account through UPI, instantly converting it to Gold at market price.
I can Sell my gold balance any day, partially or fully and get money in the bank.
I can switch part of my Gold balance, to RBI Gold Bond.
I can request home delivery of coins / bars or use my gold balance to buy Jewellery in any shop of my choice.
I can sell my RBI Gold Bond (that has 5-7 year lock in) before maturity at or close to market rates, to other milliGOLD customers. Or I can get a loan against my RBI Gold Bond.
I can open an account and start investing with just a mobile no, email ID and OTP and get a few months time to upload full KYC.
I can also move the whole grams from my Gold balance to a rented locker in my own name and get warehouse receipts with traceable serial numbers and legal right to direct possession. The remaining fractional grams will remain as Physical Gold, in milliGOLD's MCX locker. This is very important to me because, having decided to accumulate Gold, in grams, I don't want to risk the safety and security of my Gold balance.