Asset allocation is the most important investment decision of your lifetime, more important than any single investment you’re going to make in stocks, bonds, real estate, or anything else. What’s the difference?
Well, the financial decision you have already made to automatically invest a percentage of your income for compound returns gets you in the game for the long term! You can lose it all if you aren’t careful about where you put your money. Anybody can become wealthy, asset allocation is how you stay wealthy.
we are here to discuss one of the major forms of asset allocation commonly known as “BONDS”, where we will discuss the majority of bonds in India and the rest of the world.
When you buy a bond you actually buy word or promise to return your money with a specific rate of interest after a certain period of time ( commonly called the maturity date). That’s why bonds are called fixed-income investments. The income or return you’ll get from them is fixed at the time you buy them, depending upon the length of time you agree to hold them.
Sometimes you can see regular interest payments (commonly known as dividend/bond yield/interest rate) as income as the bond matures, there are more than trillions of bond and bond funds present out there.
Any bond we buy its value depends upon valuation.
- when the interest rates decrease, the valuation of. any bond increases
- when the interest rates increase, the valuation of bonds decreases
We do have many sectors of bonds to discuss must most importantly we will discuss GOLD BONDS AND their NEIGHBOURING CHARACTERISTICS
TYPES OF BONDS :
bonds are securities that represent a loan. for a loan to be completely defined, the loan amount, time for which the loan is taken, and the rate at which it is taken, must be known.
these three are known as principal, maturity, and coupon respectively in these securities. each of these features can be modified to contrust various types of bonds. bonds are also classiefied based on the type of the issuer and its credit worthiness.
- GOVERNMENT SECURITIES BONDS
- CORPORATE BONDS
- ZERO COUPON BONDS
- INFLATION-LINKED BONDS
- RBI BONDS
- SOVEREIGN GOLD BONDS
GOLD- A SECURED FORM OF INVESTMENT IN ASSET ALLOCATION
There are investors who either hate or love gold, well gold can be classified into four different categories for your asset allocation :
- THE PHYSICAL GOLD
Many people love physical gold be it in the form of jewelry or pure 24-carat gold coins or biscuits, gold unlike any other assets such as stocks or real estate may not be able to generate a high amount of return and cannot be turned into easy liquidity, physical gold always generates fewer returns as compared to other asset classes but it promises to keep your invested amount safe against the “FIAT MONEY”.
- THE SOVEREIGN GOLD BONDS:
This is another form of gold where you can earn interest @ 2.5 % in India, whether you buy physical gold or not its always great to invest some money in SGB ( sovereign gold bond ) at least every year by asking your financial consultant (www.bridgenile.com) here you can enjoy the capital gains upon maturity for a maximum tenure of 8 years, they are published by RBI and 3-4 times a year.
ADVANTAGES OF SGB:
- These are basically government back bonds, with an annual interest of 2.5% paid every 6 months in India and also provide zero capital tax gains on maturity.
- The maturity amount will be equivalent to the prevailing market value of gold.
- The interest is taxable .capital gains are not taxable on maturity but are taxable on premature redemption.
DISADVANTAGE: THERE IS A RISK OF CAPITAL DECLINE ONLY IF THE GOLD PRICES DECLINE THERE IS NO LOSS IN TERMS OF UNITS OF THE QUANTITY OF GOLD BOUGHT.
- DIGITAL GOLD :
It is another form of electronic gold or commonly called ( e-gold) which can be bought via any Demat account segment, digital gold also increase with the actual prices of gold ( it does not provide any interest ), the best advantage of this form of gold is that even a minimum amount of Rs. 10-100 can also be invested since this can be bought in the form of fraction as well.
- GOLD ETF [ EXCHANGE-TRADED FUNDS ]:
Gold ETF is likely any other ETF that is listed on the stock exchange like NSE. GOLD ETFs track the price of gold and are listed on stock exchanges (NSE/BSE) can be bought and sold in Demat using your Demat account as you would buy any other shares. The advantage of gold ETFs is that they are highly liquid, unlike sovereign gold bonds or physical golds, or digital golds, as each demat unit of a gold ETF held by your broker represents 1 gm of gold.
So, you buy at market price and sell at market price without taking the delivery of physical gold. If held for over a year, you will have to pay long-term capital gains on the gains realized just like you would for buying and selling stocks. ETFs are a great liquid alternative to owning physical gold, without the worry of storage or theft.
interest paid on a debt security is known as the coupon rate, expressed as a percentage of its face value. the actual amount of money that the investor receives as interest is equal to the product of the face value and the coupon value.
thus an 8.24GS2018 ( which is read as an 8.24% coupon bearing government security(G-sec) maturing in 2018) with a face value of Rs.1000, would pay Rs.82.40 as a coupon interest each year, till maturity, to the investor. G-sec pays interest semi-annually. so in this case, the investor would get Rs.41.2 every 6 months. the last coupon will be received on the maturity date along with the principle.
REDEMPTION OF A BOND
when debt security matures, the investor ‘ redeems” the security, which essentially means that the contract between the issuer and the investor is over. the issuer of the bond repays the principle and also makes the final coupon payment and then the bond ceases to exist, or the bond matures.
for further queries or any consultation on buying any gold investments please visit www.bridgenile.com