Banks, insurers keen on tying up with India Post

The e-mail may have replaced the snail-mail but India Post has survived the numerous obituaries written for it and become much sought-after once again on the strength of its unmatched network.

After being pursued by e-commerce firms for logistics and other support, the country’s oldest postal service provider is now being wooed by banks and insurance companies as it gears up for a debut in the payment banking business. The list of those keen to tie up with India Post includes marquee names like SBI, Bajaj Alliance, IDBI, YES Bank, HDFC and Axis Bank.

There are 17 such banking and insurance companies who have shown interest to use the postal network for delivering their services such as EMI collection and insurance.

According to government sources, these companies want to use the postal network by partnering with the India Post Payment Bank, which got licence from the RBI recently.

Sources close to the development toldBusinessLine that SBI could be the first bank to join hands with the Postal Department. “SBI chief (Arundhati Bhattacharya) and Kavery Banerjee, Secretary, Department of Posts, had a meeting recently and they discussed to work hand-in-hand for providing services to customers,” an official said.

Both the heads — of the largest bank and postal networks — discussed how they can leverage each other’s strengths and help extend financial services to the disadvantaged, the official added.

“There was a discussion also on how a postman can work as a bank agent in far-flung rural areas where neither a bank branch nor a bank agent can go for verification of loans. But with the Postal Department’s help, farmers and students can get loans (for agriculture/education) without much hassle,” the official said.

ATMs at post offices

The official said the government is also working towards banks installing ATMs at post offices; the Department of Posts has a network of 1.55 lakh branches across the country and more than 85 per cent are in rural areas.

But it is evident that the banks are gung-ho about tying up with the Postal Department as they will only stand to benefit. “This initiative will play a pivotal role in bringing a large number of uninsured segments of the country under the safety net and improving the penetration of insurance in the country,” said TA Ramalingam, Chief Distribution Officer, Bajaj Allianz General Insurance.

A tie-up with payment banks like The India Post will provide insurers an opportunity to distribute retail insurance solutions such as personal accident and health insurance policies to their huge customer base, he said.

“This will also enable insurers leverage on the payment bank’s strong distribution network to take insurance solutions to the unrepresented segments in the country, especially in tier-III cities and villages,” he added.

Business line

Nifty ETF

Exchange Traded Funds (ETF's)

In recent times, Exchange-traded funds (ETFs) have gained a wider acceptance as financial instruments whose unique advantages over mutual funds have caught the eye of many an investor. These instruments are beneficial for Investors that find it difficult to master the tricks of the trade of analyzing and picking stocks for their portfolio. Various mutual funds provide ETF products that attempt to replicate the indices on NSE, so as to provide returns that closely correspond to the total returns of the securities represented in the index. ETF's available on NSE are diverse lot. Equity, Debt, Gold and International Indices ETF's are available.

What is an Exchange Traded Fund?

An Exchange Traded Fund (ETF) is like a mutual fund that tracks an index, a commodity or a basket of assets, but trades like a stock on a stock exchange.

 • ETFs are similar in many ways to traditional mutual funds, except that shares in an ETF can be bought and sold throughout the day like stocks on a stock exchange through a broker-dealer.

 • Unlike traditional mutual funds, the ETFs are not bought and sold at the Net Asset Value (NAV); but are traded on the stock exchange at a market determined prices which is close to the NAV of the fund.

 The first ETF in India was listed on the National Stock Exchange of India Limited (NSE) and was based on the flagship Nifty 50 index of NSE. Subsequently several indices were made available for investment to retail investors through the ETF route. Currently 39 ETFs are listed on NSE.

What are the di­fferent types of ETFs?

In India we have three broad categories of ETFs that have been listed:

1. Index ETF

2. Commodity ETF

3. Liquid ETF

§  An Index ETF is based on an index published by the exchange, for example the Nifty or the Junior Nifty indices.

These ETFs allow investors to invest their money in a basket of stocks in an index at a very small amount, usually one tenth (1/10th) of the index value.

Nifty ETF – approx. ` 800 per ETF unit.

§  A Commodity ETF like Gold ETF allows the investors to invest in the commodity directly from the stock market without the need to open a commodities trading account. Also it allows investment at a smaller ticket size as compared to the typical commodity market ticket size.

§  The Liquid ETF offers an easy route for parking idle funds. Using the Liquid ETF the investors can ensure that their money earns interest even for the idle time when it is not invested in other assets.

How to Invest in ETFs?

Trading in ETFs is very simple. It is similar to how you trade in equity shares.

1) For existing Investors, Trade from your existing trading account with your broker.

2) For new Investors, Register yourself with a NSE broker

            a. Fill up the KYC form.

            b. Open a demat account.

            c. Make payment and then commence trading.

Select an ETF àPlace an Order Log into your Trading A/c or call your NSE broker àPlace an Order.

ETFs are in dematerialized form and settled like any other share in the T+2 rolling settlement.

Reasons:

1.Why Nifty ETF is a good entry vehicle for first time investor?

àSimplicity- Invest in Nifty ETF - Your easy and simple gateway to invest in stock markets.

A single unit of Nifty ETF gives you an exposure to the topmost 50 companies of India for just `800*

• No need to go through large information to select a stock.

• Each Nifty ETF unit allows you to invest your money into a well-diversi ed list of top 50 companies. You can buy a unit of Nifty ETF on NSE by simply placing an order with your broker or through your online trading account.

•Nifty ETF is typically priced at 1/10th of the Nifty index value.

 The price of `800, assuming Nifty index is at 8000 points.

2.Why an ETF is better than a mutual fund?

àLower expense ratio

1. An ETF does not need to have an expensive fund manager to pick stocks because the stocks held by an ETF are exactly the same as the underlying index.

2. Moreover, there are no commissions to be paid like in a traditional mutual fund.

3. An ETF does not churn stocks very frequently. All these ensure that ETFs are able to charge lower expense ratios on your investments, which translates into better returns with your money being invested in the fund rather than being spent. This is especially more relevant when the funds are invested for a longer time frame. The cumulative expenses will eat faster into a traditional mutual fund as compared to an ETF with lower expense ratios.

àPay capital gains tax only when you actually make capital gains

1. A mutual fund may realize a capital gain by selling o an appreciated stock. As an investor you stand to lose because you pay the capital gains tax regardless of whether you sell your holdings and regardless of whether the share price of the mutual fund increases or decreases since the time you bought it.

2. In case of ETFs, such losses are very unlikely to happen, because most ETFs have little turnover to create capital gains.

3. Moreover, ETFs are structured in a way that largely insulates shareholders from capital gains that result when mutual funds are forced to sell in order to free up cash to pay o investors who cash out.

3.Why investing in Gold ETF is better than investing in physical gold?

àNo doubt about the quality of gold

àNo fear of losing or theft

àEasy liquidity

Gold ETF was introduced in 2007 and it oered an easy way for investors to invest in their favourite commodity.

A unit of Gold ETF represents one gram of pure gold. Through the Gold ETF you can invest in gold one gram at a time and you can keep accumulating it over a period without taking any eort to physically maintain it.

The Gold ETF units are held electronically in your demat account and the underlying actual gold is held in safe vaults maintained by specialized agencies who undertake to ensure the safety of the gold.

As the Gold ETF is traded on the exchange an investor can buy and sell anytime during the market hours at the screen price. Unlike physical gold market there is no making charges  for  purchase or depreciation for selling gold. The price that you see is the price you get.

The gold held by a Gold ETF is typically of  995  purity or higher.

4.That make ETF better than Fixed Deposits.

àTrack record of better long term returns

 àBeats ininflation, delivers REAL RETURNS

àEasy liquidity

àTax Free on sale beyond one year

• The stock market has a track record of generating better returns as compared to the fixed deposits over a long time frame.

• Given the high rate of inflation most fixed return investments generate a negative or very low real return i.e. the actual returns earned after accounting for the inflation in the corresponding period. For example, if a fixed deposit for one year gives 9% returns and the inflation during the corresponding period was 8%, the real return for that one year would be only 1%.

• The fixed deposits have a limited liquidity. Though you are able to get your capital back whenever required, you typically lose most of your interest if you withdraw prematurely. This is not the case with ETFs. The ETFs allow an investor to stay invested as long as he wishes and there are no maturity dates or related penalties.

• Gains generated from an ETF are tax free after one year unlike in the case of fixed deposits where the interest earned is taxable at your existing tax slab rate.

5.Why ETFs are much better long term investment instruments than Real Estate?

àPrice transparency

àClear title Easy liquidity

àNo tax on sale beyond one year

àNo maintenance

ETFs are traded on the exchange like any other product. You get the price that you see. There is a complete price transparency.

NSE guarantees the settlement of your transactions. You are assured of your transactions.

NSE is the most preferred Exchange in India and abroad ensuring ample liquidity in the markets. Unlike a real estate investment which may take several days or even months to get liquidated at a price which is not transparent, ETFs can be instantly bought and sold on the exchange.

Real estate investments are subject to capital gains tax whereas all gains in ETFs are tax free beyond one year of holding.

No additional charges are required for ETF investments. Your existing   demat account is good enough to hold all your ETF investments.

List of Banks in India

Public-sector banks

There are currently 27 public sector banks in India out of which 21 are nationalised banks and 6 are State Bank of India and its associate banks. There are a total of 93 commercial banks in India.

State Bank and its associate

1. State Bank of India
2. State Bank of Bikaner & Jaipur
3. State Bank of Hyderabad
4. State Bank of Patiala
5. State Bank of Mysore
6. State Bank of Travancore

Nationalised banks

1. Allahabad Bank
2. Andhra Bank
3. Bank of Baroda
4. Bank of India
5. Bank of Maharashtra
6. Canara Bank
7. Central Bank of India
8. Corporation Bank
9. Dena Bank
10. Indian Bank
11. Indian Overseas Bank
12. Oriental Bank of Commerce
13. Punjab & Sind Bank
14. Punjab National Bank
15. Syndicate Bank
16. UCO Bank
17. Union Bank of India
18. United Bank of India
19. Vijaya Bank

Other public sector banks

1. Bharatiya Mahila Bank
2. IDBI Bank

Private-sector banks

1. Axis Bank
2. Bandhan Bank
3. Catholic Syrian Bank
4. City Union Bank
5. Development Credit Bank
6. Dhanlaxmi Bank
7. Federal Bank
8. HDFC Bank
9. ICICI Bank
10. IDFC Bank
11. IndusInd Bank
12. ING Vysya Bank (merged Kotak Mahindra Bank in April 2015)
13. Jammu and Kashmir Bank
14. Karnataka Bank
15. Karur Vysya Bank
16. Kotak Mahindra Bank
17. Lakshmi Vilas Bank
18. Nainital Bank
19. Sunitkeshrai Bank
20. South Indian Bank
21. Tamilnad Mercantile Bank
22. Yes Bank

Foreign banks

Foreign banks with branches in India

List of banks which are incorporated outside India and are operating branches in India (as of 31 January 2015):

Australian banks

1. Australia and New Zealand Banking Group
2. Commonwealth Bank of Australia
3. National Australia Bank
4. Westpac Banking Corporation

Bahraini bank

1. Bank of Bahrain and Kuwait

Bangladeshi banks

1. AB Bank
2. Sonali Bank

Belgian bank

1. Antwerp Diamond Bank

Canadian bank

1. Bank of Nova Scotia

Chinese bank

1. Industrial & Commercial Bank of China

French banks

1. BNP Paribas
2. Credit Agricole
3. Societe Generale

German banks

1. Deutsche Bank

Indonesian bank

1. Bank Internasional Indonesia

Japanese banks

1. Mizuho Corporate Bank
2. Sumitomo Mitsui Banking
3. Bank of Tokyo-Mitsubishi

Mauritian bank

1. State Bank of Mauritius

Dutch bank

1. Rabobank

Qatari bank

1. Doha bank

Russian banks

1. Sberbank
2. VTB

Omani bank

1. HSBC Bank Oman

Scottish bank

1. Royal Bank of Scotland

Singaporean banks

1. DBS Bank
2. United Overseas Bank

South African bank

1. FirstRand Bank

South Korean banks

1. Shinhan Bank
2. Woori Bank

Sri Lankan bank

1. Bank of Ceylon

Swiss banks

1. Credit Suisse
2. UBS AG

Taiwanese bank

1. Chinatrust Commercial Bank

Thai bank

1. Krung Thai Bank

UAE banks

1. Abu Dhabi Commercial Bank
2. Mashreq Bank

UK banks

1. HSBC
2. Barclays Bank
3. Standard Chartered Bank
4. The Royal Bank of Scotland(RBS N.V)

US banks

1. American Express
2. Bank of America
3. Citibank
4. J.P. Morgan Chase Bank

Foreign banks with representative offices in India

List of foreign banks with representative offices in India (as of 31 January 2015):

Austrian bank

1. Raiffeisen Zentralbank

Belgian bank

1. KBC Bank

Canadian banks

1. Royal Bank of Canada
2. Toronto Dominion Bank

French Banks

1. Credit Industriel et Commercial
2. Natixis

German banks

1. Commerzbank
2. DZ Bank
3. KfW
4. Landesbank Baden-Württemberg

Italian banks

1. Banca Monte dei Paschi di Siena
2. Banca Popolare di Milano
3. Banca Popolare di Vicenza
4. Intesa Sanpaolo
5. UBI Banca

Malaysian bank

1. CIMB

Nepalese bank

1. Everest Bank

Norwegian bank

1. DNB ASA

Portuguese bank

1. Caixa Geral de Depositos

Russian banks

1. Gazprombank
2. Promsvyazbank
3. Vnesheconombank

South Korean banks

1. Industrial Bank of Korea
2. Kookmin Bank
3. Korea Exchange Bank

Spanish Banks

1. Banco de Sabadell
2. Banco Bilbao Vizcaya Argentaria
3. Caixabank

Sri Lankan bank

1. Hatton National Bank

Swedish banks

1. Skandinaviska Enskilda Banken
2. Zurcher Kantonalbank

Taiwanese banks

1. Bank of Taiwan
2. Mega International Commercial Bank

Turkish bank

1. Bank Asya

UAE banks

1. Emirates NBD
2. First Gulf Bank

UK bank

1. Duncan Lawrie

US banks

1. Bank of New York Mellon
2. Wells Fargo Bank

Regional Rural Banks (RRBs)

List of Regional Rural Banks in India:

Andhra Pradesh

1. Andhra Pradesh Grameena Vikas Bank
2. Andhra Pragathi Grameena Bank
3. Chaitanya Godavari Grameena Bank
4. Deccan Grameena Bank
5. Saptagiri Grameena Bank

Assam

1. Assam Gramin Vikash Bank
2. Langpi Dehangi Rural Bank

Arunachal Pradesh

1. Arunachal Pradesh Rural Bank

Bihar

1. Uttar Bihar Gramin Bank
2. Madhya Bihar Gramin Bank
3. Bihar Gramin Bank

Chhattisgarh

1. Chhattisgarh Rajya Gramin Bank

Gujarat

1. Dena Gujarat Gramin Bank
2. Baroda Gujarat Gramin Bank
3. Saurashtra Gramin Bank

Haryana

1. Sarva Haryana Gramin Bank

Himachal Pradesh

1. Himachal Pradesh Gramin Bank

Jharkhand

1. Jharkhand Gramin Bank
2. Vananchal Gramin Bank

Jammu & Kashmir

1. Jammu And Kashmir Grameen Bank

Karnataka

1. Kaveri Grameena Bank
2. Karnataka Vikas Grameena Bank
3. Pragathi Krishna Gramin Bank

Kerala

1. Kerala Gramin Bank

Madhya Pradesh

1. Narmada Jhabua Gramin Bank
2. Central Madhya Pradesh Gramin Bank
3. Madhyanchal Gramin Bank

Maharashtra

1. Maharashtra Gramin Bank
2. Vidarbha Kokan Gramin Bank

Manipur

1. Manipur Rural Bank

Meghalaya

1. Meghalaya Rural Bank

Mizoram

1. Mizoram Rural Bank

Nagaland

1. Nagaland Rural Bank

Odisha

1. Odisha Gramya Bank
2. Utkal Grameen Bank

Punjab

1. Punjab Gramin Bank
2. Malwa Gramin Bank
3. Sutlej Gramin Bank

Puducherry

1. Puduvai Bharathiar Grama Bank

Rajasthan

1. Baroda Rajasthan Kshetriya Gramin Bank
2. Marudhara Rajasthan Gramin Bank

Tamil Nadu

1. Pandyan Grama Bank
2. Pallavan Grama Bank

Tripura

1. Tripura Gramin Bank

Uttar Pradesh

1. Allahabad UP Gramin Bank
2. Baroda UP Gramin Bank
3. Gramin Bank Of Aryavrat
4. Kashi Gomti Samyukt Gramin Bank

Uttarakhand

1. Uttarakhand Gramin Bank

West Bengal

1. Bangiya Gramin Vikash Bank
2. Paschim Banga Gramin Bank
3. Uttarbanga Kshetriya Gramin Bank

Cooperative banks

State Cooperative Banks (SCBs)

List of State Cooperative Banks:

1. Andaman and Nicobar State Co-operative Bank
2. Andhra Pradesh State Co-operative Bank
3. Arunachal Pradesh State Co-operative Apex Bank
4. Assam Co-operative Apex Bank
5. Bihar State Co-operative Bank
6. Bharat Co-operative Bank
7. Chandigarh State Co-operative Bank
8. Chhattisgarh Rajya Sahakari Bank Maryadit
9. Delhi State Co-operative Bank
10. Goa State Co-operative Bank
11. Gujarat State Co-operative Bank
12. Haryana State Co-opertive Apex Bank
13. Himachal Pradesh State Co-operative Bank
14. Jammu and Kashmir State Co-operative Bank
15. Jharkhand State Co-operative Bank
16. Karnataka State Co-operative Apex Bank
17. Kerala State Co-operative Bank
18. Madhya Pradesh Rajya Sahakari Bank Maryadit
19. Mogaveera Co-operative Bank
20. Maharashtra State Co-operative Bank
21. Manipur State Co-operative Bank
22. Meghalaya Co-operative Apex Bank
23. Mizoram Co-operative Apex Bank
24. Nagaland State Co-operative Bank
25. Orissa State Co-operative Bank
26. Pondichery State Co-operative Bank
27. Punjab State Co-operative Bank
28. Rajasthan State Co-operative Bank
29. Sikkim State Co-operative Bank
30. The Tamil Nadu State Apex Co-operative Bank
31. Telangana State Co-Operative Apex Bank Limited
32. Tripura State Co-operative Bank
33. Uttar Pradesh Co-operative Bank
34. Uttarakhand State Co-operative Bank
35. West Bengal State Co-operative Bank
36. Tumkur Grain Merchant's Co-operative Bank

Urban Cooperative Banks (UCBs)

510 Army Base Workshop credit Co operative Bank Meerut Cantt UP

Scheduled

List of Scheduled Urban Cooperative Banks in India:

1. The Varachha co-operative Bank
2. Ahmedabad Mercantile Co-Op Bank
3. Kalupur Commercial Coop. Bank
4. Mehsana Urban Co-Op Bank
5. Nutan Nagarik Sahakari Bank
6. Rajkot Nagrik Sahakari Bank
7. Sardar Bhiladwala Pardi Peoples Coop Bank
8. Surat Peoples Coop Bank
9. Rajdhani Nagar Sahkari Bank
10. Andhra Pradesh Mahesh Co-Op Urban Bank
11. Indian Mercantile Co-operative Bank
12. Abhyudaya Co-operative Bank
13. Bassein Catholic Co-operative Bank
14. Bharat Co-operative Bank (Mumbai)
15. Bharati Sahakari Bank
16. Bombay Mercantile Co-operative Bank
17. Citizen Credit Co-operative Bank
18. Cosmos Co-operative Urban Bank
19. Dombivli Nagari Sahakari Bank
20. Goa Urban Co-operative Bank
21. Gopinath Patil Parsik Janata Sahakari Bank
22. Greater Bombay Co-operative Bank
23. Jalgaon Janata Sahakari Bank
24. Janakalyan Sahakari Bank
25. Janalaxmi Co-operative Bank
26. Janata Sahakari Bank
27. Kallappanna Awade Ichalkaranji Janata Sahakari Bank
28. Kalyan Janata Sahakari Bank
29. Karad Urban Co-operative Bank
30. Mahanagar Co-operative Bank
31. Mapusa Urban Co-operative Bank of Goa
32. Nagar Urban Co-operative Bank
33. Nasik Merchant's Co-operative Bank
34. New India Co-operative Bank
35. NKGSB Co-operative Bank
36. Pravara Sahakari Bank
37. Punjab & Maharashtra Co-operative Bank
38. Rupee Co-operative Bank
39. Sangli Urban Co-operative Bank
40. Saraswat Co-operative Bank
41. Shamrao Vithal Co-operative Bank
42. Solapur Janata Sahakari Bank
43. Thane Bharat Sahakari Bank
44. The Kapole Co-operative Bank
45. TJSB Sahakari Bank
46. Zoroastrian Co-operative Bank
47. Nagpur Nagrik Sahakari Bank
48. Shikshak Sahakari Bank
49. Akola Janata Commercial Co-operative Bank
50. Akola Urban Co-operative Bank
51. Khamgaon Urban Co-operative Bank
52. MACO BANK
53. Eenadu Urban Co operative Bank
54. Rohit Kataria Co-operative Bank

Sovereign Gold Bond Scheme Launched – Here are 6 important Facts

Today I want to share some quick facts regarding Sovereign Gold Bonds which was announced in budget session and recently mentioned by our Prime minister. RBI is going to issue something called Sovereign Gold Bonds for investors who want to benefit from the movement from Gold prices. It’s an alternative way to invest in gold apart from buying physical gold or through gold ETF or gold Mutual fund.

These bonds issue are part of market borrowing programme of govt of India, where it tries to borrow money from public for long term. So to understand it in brief, govt wants to borrow money from those who want to invest in gold and they would return back the money after X number of years which will be linked to price of gold apart from a small interest.

Now lets understand quickly what this scheme is all about and some high level important points every investor would want to know.

1. Issued by RBI and hence its safe and secure

These bonds are issued by Reserve bank of India and hence it carries a sovereign guarantee by Govt of India.So in a way its 100% safe and secure and there are no chances of fraud or any issues happening in future.

However you need to know that the bond value is linked with the gold prices and hence the bonds value can increase and decrease in future depending on the gold price movement.

However whatever is the maturity value will be paid to you and the guarantee is only for that. There is no assurity for any minimum value payment or any promise of return. One can hold the bonds in a single name or joint name as per preference.

2. First Batch of bonds available from Nov 5-20

As per a report, out of Rs 15,000 crore of bonds, the first batch of Rs 1,000 crore bonds are available from Nov 5 and last date for application is Nov 20. The bonds are available for only residents Indian and NRI’s cant buy it. The bonds will be available at selected banks and post offices designated under the scheme. I was not able to find exact locations, but I think all the major PSU banks in every city and some big post offices will be the contact point if one wants to purchase these bonds.

Below you can see a sample form and how it has to be filled. You can also download the form from his link

3. Amount of investment and Tenure

The minimum one has to buy 2 gms worth of gold bonds and maximum can be 500 gms. So every a normal middle class person who wants some exposure in gold can buy it. The initial issue price is fixed at Rs 2,684 per gram. Which means a minimum initial investment would be Rs 5,400-5,500 atleast.

Note that price fixed is simple average of closing price of the 999 purity gold, published by India Bullion and Jewellers Association Ltd (IBJA).

The bonds will be issued with a 8 yr tenure, however an exit option will be available after 5th year onwards. The bonds can also be traded on stock exchanges if you have it in demat form. However I think its not going to work for most of the investors because that will get too complicated. Also you will be able to trade the bonds on markets only if the volumes are very good, otherwise it will be locked away and you will be able to get back the money only after the 5/8 yrs of time. You can read detailed FAQ’s on this scheme here

Also note that these bonds can be provided as collateral incase, you need any loans.

4. You will get interest of 2.75% 

You will get interest of 2.75% interest on the initial value of investment (not the market price) every 6 months. I have not gone in details, but I think the way it will work is that if you invest Rs 1,00,000 in these bonds, then every 6 months you will get 2.75% of Rs 1 lac as interest, which would be Rs 2,750.

5. Taxation on returns and maturity

Note that the interest you earn every 6 months will be taxable in your hands. Also at the time of maturity, the long-term capital gains will be applicable, which means that after applying indexation, you will have to pay 20% tax on the returns. Note that because KYC is done properly, you cant escape this.

5. KYC requirement

You will be able to buy these gold bonds only after the KYC is done for you. In simple terms, at the time of application you will have to provide your identity and provide your PAN or Aadhar card etc and the payment can be done electronically, with cheque/DD or even CASH. However, you will not be able to hide your identity. This will surely discourage those investors who want to convert their unaccounted money (CASH) into white money.

6. Investment in Paper or Demat Form

You can purchase the bonds in paper format or demat holding as per your preference. Means if you want the bond in paper format, you will get a receipt and a bond which you can keep in your locker or at home and at the time of maturity you can give it back. Or you can hold it in demat form and not worry about keeping the bond safely.

Who should not invest in these gold bonds ?

I think that 5-8 yrs tenure is a long tenure and you can earn much better returns in this long term. Equity mutual funds would deliver better returns compared to this scheme. Hence if you are a young person below age 40, and are looking at wealth creation as your main goal, then you can give a miss to this scheme. The return on the scheme (2.75%) is not to be considered and the gold returns historically has been around inflation only.

If you look at the below chart, you can see 5 yrs CAGR return of the gold investment. Note that for the tenure of 2000-2010 the returns have been very very good, but then if you look at someone who invested in year 2010, they have just got a 7% CAGR return, which is very much in tune of long term gold returns.

So if we look at the optimal use of your investment to generate decent return, I personally dont consider this as a great investment product. You can skip this.

Who can think of buying these bonds?

Now if we look at the other side, There are many investors who are very attached to gold and really want to invest in that. No logic will move them and no conversation of CAGR will make sense to them. So for those investors who were anyways going to buy physical gold or Gold ETF, can look at this scheme as a good alternative.

Anyways your investment value will move as per gold prices and on top of it, you will get 2.75% interest which you do not get in case of physical gold or gold ETF/funds. The best part of this scheme is that you don’t have to worry on the quality of the gold or where to store it as its all in paper format and no one is going to steal it from you. The money will only come back to your bank account only which you have provided at the time of investment.

However note that the investment in these bonds are going to be mainly illiquid in very short term. If you buy physical gold, you get that liquidity in your hand and if you need money urgently you can sell off the gold. You will not get it here.

So overall, you are the right person to pick if this scheme is for you or not.

Public Provident Fund (PPF) Vs National Savings Certificate (NSC)

By Larissa Fernand (edited by Varun Sharma)*

To start off with, let’s look at the investment trinity. There are three guidelines on which you must evaluate every single investment: risk, return, liquidity.

In the case of PPF and NSC, both are backed by the government and so score high on the risk parameter. You can be pretty sure of getting your money back.

On the liquidity front, there is a fair amount of disparity. Agreed, both have fixed tenures. But the NSC does show up in a more favourable light simply because of the lower lock-in period. The NSC VIII issue is for 5 years and the NSC IX issue is for 10 years.

PPF is much longer at 15 years and can even be extended by a block of 5 years on maturity. But worth noting is that after the third financial year, excluding the year of the deposit, an investor is allowed to take a loan on his investment. Partial withdrawals are permissible after the expiry of the sixth year from the date that the initial subscription is made.

They continue to diverge on the return front too. Of course, they both offer fixed returns which are set at the start of the financial year but the similarity ends there. The current rate for PPF, as fixed by the RBI, is 8.7% per annum. Currently the rate for NSC is fixed at 8.5% (NSC VIII) and 8.8% (NSC IX) per annum.

In the case of NSC, the rate of return is locked at the time of investment and during the tenure of the investment it remains insulated from any changes in rates. That is because once you buy a NSC, you cannot continue to add to that particular investment certificate. If you want to increase your exposure, you will have to buy another. In the case of PPF, it is an account and you can keep adding to it.

The return in both cases is compounded and handed over on maturity. An apparent distinction is that the return is compounded annually in the case of PPF, but half-yearly where NSC is concerned. Once again, it puts NSC in a good light but the tax benefit nullifies the effect.

Both instruments qualify for a deduction under Section 80C of the Income Tax Act. The maximum limit under this section is Rs 1.50 lakh. You can choose to invest up to that limit in either of the two instruments or both. (Or any other instrument under Section 80C).

PPF offers you a deduction all the way and is known as EEE – implying exempt-exempt-exempt. What this means is that you get a deduction when you invest under Section 80C, the interest earned every year is exempt from tax, and the entire amount at maturity (principal + interest earned) is also exempt from tax.

Not so in the case of NSC where the interest is taxed. So as mentioned above, even though the return in NSC is compounded half yearly, the return is taxed which makes PPF a better tax-saving option but with a longer lock-in.

So how does one choose between the two?

If you already have a PPF account, you would know that you have to invest at least Rs 500 every year to maintain the account. In fact, you can invest up to 12 instalments in one financial year as long as the totality of investment does not exceed Rs 1.50 lakh.

The NSC is a one-time investment. The investment can start from as low as Rs 100 and there is no maximum limit. However, once you touch the limit under Section 80C (Rs 1.50 lakh), the investments in NSC do not qualify for a tax deduction.

So if you have an ongoing PPF account, it would be better to keep investing in it since it also offers great tax benefits. However, if you forsee an expense exactly 5 years down the road, then you could consider an NSC with that very tenure. 

* Source: http://www.morningstar.in/posts/30251/should-you-invest-in-ppf-or-nsc.aspx