Finergo Episode 02 17nov08

04 KALEIDOSCOPE

■ Can I reduce the TDS that my company deducts from my salary? Vignesh

Yes you can. The extent of reduction depends on your actual salary – higher the salary, higher will be the deduction and lesser will be the reduction. The TDS can be reduced by planning your Section 80C benefits, housing loan, leave travel allowance, etc, but as salaried people there is only an extent to which income tax can be reduced. Hence, TDS is a pain that we have to live with. The positive side of TDS is that there will be less burden at the end of the year to clear our tax arrears. And we can always claim additional tax paid if any with our tax returns. Mail your queries to [email protected]. Your queries will be replied by mail as well as printed in this column. All the answers will be neutral and your personal details will be kept confidential

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■ Term Insurance Plan This is the most basic and fundamental type of insurance plan. Under this you pay a premium to the life insurance company to cover your life for a period of one year for N number of years where ‘N is the term. After the year is over, the premium is not valid and you need to pay for the next year. (It is exactly like your car insurance, except that it provides cover for your life)

■ ULIP (Unit linked Insurance Plan) In very simple terms it is a combination of a life insurance policy and a mutual fund. Part of the amount you pay as premium is used to give you life cover and part of the premium is used to invest your money in other investments. Thus you get the benefit of life cover as well as wealth creation at one go.

GOLD - Jitter or Glitter The best investment in gold assets should be in the form of gold bullion and exchange traded funds, but not in jewellery AMBIGA RAJESHWARI [email protected]

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ndians simply adore the yellow metal for cultural and religious reasons and buy gold jewellery for most social and family celebrations. The amount of gold in Indian households is close to 15,000 tonnes, which is valued at a whopping Rs. 17, 06, 190 crores as of March 31, 2008. But, this trend is also changing as most youngsters are not very keen about buying gold. Today, we don’t even spend 2 per cent on jewellery as against 32 per cent 50 years ago. In cities like New Delhi and Mumbai, surging incomes, changing lifestyles and introduction of high-end goods have pushed gold downward on consumers’ lists of must-haves. The disposable income that traditionally went exclusively to gold is now going to diamonds, overseas holidays, fancy car, etc. India is still the world’s largest consumer of gold, but most of the gold ends up in bank safes, viewed as a hedge against inflation and as the source of a woman’s security. With expected price shoot up of gold during the marriage season beginning November, portfolio strategists have begun to advise people to invest in gold. This view seems strong enough as most other assets are in trouble following the global financial meltdown.

Is it a wise investment? When we compare the price of gold with the inflation index, we can see that gold gives only 0.8 per cent more

CROSSWORD

(This column will try to simply personal finance related jargon)

ERGO Monday, November 17, 2008

For answer turn to page 07

returns over inflation. Though it has high liquidity and is easy to procure and protect, it is not one that will give returns. Hence, it should be used for what it is good at, that is, a hedge against inflation. The reason why gold is considered ‘inflation-resistant’ is that the amount of it on the surface is pretty much fixed. Since the demand for gold is almost twice the amount that is actually mined, the prices for gold are likely to go up steadily. At present, gold prices are hovering between Rs.11,000 and Rs.13,000 per 10 grams, giving investors an idea of easy return between 15 and 30 per cent in a year. To look at, gold seems to be a good harbour amidst the havoc of other assets caused by the global crisis.

Gold bullion Good investors consider gold as a compliment rather than a replacement for stock investments. In the long run, stocks have much higher growth potential, but gold can complement a diversified portfolio and help hedge against some risk. Having gold comprise 10 to 15 per cent of any portfolio would probably be sufficient. The best investment in gold assets should be in the form of gold bullion and exchange traded funds and never in jewellery. Gold can be a saviour from inflation and recession rather than a high return opportunity. ■ The author is a Research Associate with Finerva