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You have now an array of investing products strung around gold. Listed and un-listed companies sell loans to people in exchange for pledging their gold jewellery items. Such loans are sanctioned in ‘three-minute..

22 Nov 2012

By George Iype
Is gold an ideal investment that makes sense? Indians have been buying gold for ages. The golden wealth that Indian households currently own is a mind-blowing quantity of roughly 15000 tons. In the last few years, the price of gold has shot up, giving the bullion metal the great label of one of the best investment vehicles.

You have now an array of investing products strung around gold. Listed and un-listed companies sell loans to people in exchange for pledging their gold jewellery items. Such loans are sanctioned in ‘three-minutes’ as an advertisement from a major listed company blares out. The quantity of yellow metal in custody of such gold financing companies is so huge that we do not know whether they would beat the gold reserves of the Reserve Bank of India (RBI).

You have then e-gold series from the National Spot Exchange, wherein investors can buy a variety of gold denominations and keep them in demat form. You can also take delivery of gold coins from the Exchange delivery centres. There are then a dozen exchange traded funds (ETFs) on gold that are traded on the National Stock Exchange (NSE). Added to this, banks, post offices and other finance companies are selling gold coins like hot cakes in the Indian market.

Indians probably view gold as the best investment. Many of them are averse to other investing asset classes like stocks, mutual funds, insurance etc. If the whole nation is after gold, what is wrong in seeing the yellow metal as the safest and best investment proposition?

But when I met Dr Prasanna Chandra recently in Bangalore, my idea of gold petered out. Dr Chandra is the Director of the Bangalore-based Centre for Financial Management. He is also a visiting Professor of Finance at the Indian Institute of Management, Bangalore. He has over four decades of teaching experience in post graduate and executive education programmes. He was appointed as a member of several committees including the Capital Issues Advisory Committee, the High Powered Committee on Insurance Sector Reforms, and the SEBI Committee on Derivatives. He has served or is serving on the boards of a number of organizations including Power Finance Corporation, Unit Trust Of India Investment Advisory Services Limited, Torrent Pharmaceuticals Limited, Inter-Connected Stock Exchange of India, Indian Institute of Management,Bangalore, State Bank Academy,IFCI,KSDL,Templeton Mutual Fund, Bangalore Stock Exchange Limited. He has been a consultant to many organizations.

Listening to a three-hour lecture from Dr Chandra at IIM-B on portfolio management and investment strategies was an eye-opener.

Dr Chandra says he has not yet understood why Indians are drooling over gold. According to him, gold is never an ideal investment asset. Stocks, mutual funds, public provident fund, insurance products linked to equities etc are perfect investment vehicles.

“I don’t know why people in India are going crazy after gold. Having said that I too own gold, not out of my urge to invest but out of marital compulsions. My wife wants to keep gold and so I don’t want to disturb the marital harmony at home,” jokes Dr Chandra.

The acclaimed economist who has written some of the best books that are taught in IIMs and other management institutes across the country says there is so much hype built over gold extolling the virtue of the yellow metal as the investment manna from heaven. “It is a myth that gold is an investment vehicle. If you had invested in Infosys or Reliance shares 10 years back, the value creation you may have made would have been much better than gold,” he argues.

So, Dr Chandra told us, don’t put gold in your personal investment portfolio. Reading Dr Chandra’s book Finance Sense takes you to the exciting world of finance. His language is so simple that an elementary school kid can understand his ideas on finance. He teaches you what is profit and loss, what is balance sheet and reserves in so simple terms that a non-finance professional would get deeply excited in the subject.

So should we believe Dr Chandra on gold? Is investing in gold meaningless? I was wondering on these when recently I happened to read RBI urging the public against choosing gold as an asset for savings or investment. "Because interest rates are very low, people are investing in gold. But the poor should never invest in gold for whenever they have purchased gold, it either lands up in the temple or in the hands of the moneylender or, at the most, it may be given away during a daughter's marriage," said K C Chakrabarty, deputy governor, RBI.

RBI says the $60 billion worth of gold that India imports every year is one of the main reasons behind the current account deficit in the country!

Debate over the glittering lure that gold gives to India’s large investing public goes on.

George Iype is the Managing Director and CEO of Commodity Online Group

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23 Nov 2012
wonderful article. keep up the good work
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