A study on Various Investment Avenues for Investors ...ijetmas.com/admin/resources/project/paper/f201607121468379724.pdf · A study on Various Investment Avenues for Investors towards

International Journal of Engineering Technology, Management and Applied Sciences

www.ijetmas.com July 2016, Volume 4, Issue 7, ISSN 2349-4476

22 B. Umakalyani, Dr. N.Kannan

A study on Various Investment Avenues for Investors towards

Gold Investment

B. Umakalyani1,

Research Scholar, SMK Fomra Institute of Technology, OMR, 603 103

Dr. N.Kannan2,

Research Supervisor, Sathyabama University, Rajiv Gandhi Road, Chennai 119

Abstract

In this modern time, the money plays an important role in everybody’s life. Every individual saved from current

consumption for the benefits of future requirements. Saving of people is invested in various assets for fulfilling future

needs. Investment is the commitment of funds which have been saved from current consumption with the hope that some

benefits will be received in the future. Thus it is a reward for waiting for money. Saving of the individual are invested in

assets depending on their risk and return demands, safety money, liquidity, the various alternatives available for

investment in gold through options like jewellery, coins, bullions, ETF, mutual funds, E-gold etc. The present study “A

study on various Investment Avenues for Investors towards Gold Investment” tries to study forms of gold

investment available to investors. The objectives of the study is to understand the various investment options for

investors, factors needs to be aware of and know-how of investing in gold , pros and cons of various forms of investments

and to assist investors in creating awareness about various gold investment options. For the purpose of study the

primary data and Secondary data has been collected. Primary data consists of questionnaire and secondary data

through website, research papers and magazines. Based on the research it is found that many investor still prefer

jewellery, gold coins and gold bullion bars forms of investment and prefer to invest in ETF and Futures and options

which gives more profit and easy form of investment..

Key words: Investment Avenues, Risk & Return, Tax treatment, Gold Investment.

1. Introduction:

1.1 Introduction to gold:

Gold is a comparatively dense, shiny, yellow metal. As an element, gold is quite resistant to corrosion (by

oxygen, but also many other chemicals) .

“Gold is a chemical element with the symbol Au and an atomic number of 79. Gold is a dense, soft,

shiny metal and the most malleable and duct ile metal known.”

In ancient times the value of gold had already been discovered. People took gold to make jewellery and

currency. It is a symbol of wealth, beauty and heritage carrying memories and cultures. However, besides

these, gold also makes significant contributions to a wide range of technologies. Due to its physical

features as corrosion resistance and highly malleable and ductile, gold is being applied in space

exploration, nanoparticle technology, and medicine. Moreover it is also used as the bonding wire at the

core of an iPhone.

1.1 Introduction to gold as an investment:

Gold is considered by many, to be the best investment you can make to protect yourself during

stock market declines and inflation. In fact, history shows that the performance of gold goes up in times of

high inflation. However, the price of gold also has its highs and lows and you could just as easily lose

money investing in gold as with any other investment.

1.2 Factors need to be considering while investing in gold:

(i) Forms of buying gold: any investor has to be aware of the different forms of buying gold. Jewellery,

1 Assistant Professor, SMK Fomra Institute of Technology, IT High way, OMR, 603 103

2Professor in MBA Department , Sathyabama University, Rajiv Gandhi Road, Chennai 600 119




the most traditional and the dominant form of buying gold in India and Bank coins, bullion bars, gold

exchange trades etc are other forms of investment.

(ii) Current income: Gold in any form does not give any current income. The only exception is the

dividend option in the gold ETFs. If held in the physical form, there is only outflow of cash for the

maintenance of lockers.

(iii) Capital appreciation: gold is a very strong bet compared to shares that are highly volatile.

The idea for gold investment will be to use it at times when the markets are falling and when the

inflation is very high.

(iv) Risk: Gold does not carry much risk at least in India, as we hardly see deflation in the real sense.

(v) Liquidity: Gold scores the highest in terms of liquidity, compared to all other

investments. At any time of the day and any day gold can literally be converted to cash. Banks

would give you a jewellery loan (remember though that many banks do not give loans on coins,

including their own), and so would your friendly neighborhood pawn shop.

(vi) Tax treatment: Gold suffers capital gains tax as per the IT Act. So it is better to ask your jeweler for

the bill. Gold does not have any other tax benefits.

(vii) Convenience: Gold scores very high here. But with the per gram price rising, thesmallest

single investment is becoming higher.

1.1 Various forms of investment in gold:

a. Jewellery

b. Gold bullion bars c. Gold coins

d. Gold certifications or deposit scheme

e. ETF

f. Gold mutual funds g. E-Gold.

h. Futures & options.

2.0 Review of Literature

Vidhyashankar S (1990) identified a shift from bank or company deposits to mutual funds due to its

superiority by way of ensuring a healthy and orderly development of capital market with adequate investor

protection through SEBI interference. The study identified that mutual funds in the Indian capital market have

a bright future as one of the predominant instruments of savings by the end of the century.

Lal C and Sharma Seema (1992) identified that, the household sector’s share in the Indian domestic savings

increased from 73.6 percent in 1950-51 to 83.6 percent in 1988-89. The share of financial assets increased

from 56 percent in 1970-71 to over 60 percent in 1989-90 bringing out a tremendous impact on all the

constituents of the financial market.

Sanjay Kant Khare (2007) opined that investors could purchase stocks or bonds with much lower trading costs

through mutual funds and enjoy the advantages of diversification and lower risk. The researcher identified

that, with a higher savings rate of 23 percent, channeling savings into mutual funds sector has been growing

rapidly as retail investors were gradually keeping out of the primary and secondary market. Mutual

funds have to penetrate into rural areas with diversified products, better corporate governance and

through introduction of financial planners.

3.0 Research Methodology

The present study is descriptive study in nature. In this study my objective is to study various options

available for investors in gold investment and to create awareness on various forms of gold investment.

In order to get required information, the information was gathered from the Primary and Secondary

sources. Primary data consists of questionnaire and secondary data consists of information sourced




through various websites, research articles. For the purpose of study data has been collected from

50 respondents in Bangalore and the convenience sampling has been used.

3.1 Statement of the Problem

In India most of the investors invest in gold in the form of jewellery which involves various constraints;

includes high making charges, loss of value, safety issue and storage/ locker charges. The

present study creates awareness among investors in investing in various forms of gold investment.

3.2 Need of the Study

This study is required to know overbought level and oversold level of the Gold price in the Commodity

Market.

It is needed to anticipate a Bullish trend and Bearish trend in the commodity market.

It is essential to know when to buy the Gold and when to Sell the Gold in the Commodity Market

3.3 Objectives of the study

To identify the various options available for investors in gold investment.

To find out the pros and cons of various forms of gold investment.

To create awareness among investors on various gold investment.

Data Analysis and Interpretation

Table 1- Table showing respondent Gender Information

Gender Number of Respondents

Male 28

Female 22

Graph 1- Graph showing Respondents Gender Information.

0

5

10

15

20

25

30

Male Female

2822

Number of Respondents




Inference: The above graph shows 56% respondents are Males and 44% are Females.

Table 1.1 -Table showing most preferred investment options among 4 Metals

Metal Number of Respondents Percentage

Gold 23 46

Silver 14 28

Platinum 8 16

Diamond 5 10

Graph 1.1-Graph showing most preferred investment options among 4 Metals (In percentage)

Inference: The graph shows 46% of investors prefer to invest in Gold than Silver, Platinum and

Diamond and the second preferred investment is Silver.

Table 1.2-showing willingness to invest in Gold

Yes 45

No 5

46

28

1610

0

5

10

15

20

25

30

35

40

45

50

Gold Silver Platinum Diamond




Graph1.2-Graph showing willingness to invest in Gold

Inference: 45 Respondents i.e. 90% of investors are willing to invest in gold and only 10% respondents

a r e not willing to invest in gold.

Table 1.3-Table showing most preferred form of Investing in Gold

Jewellery 18

Gold Bullion Bars 7

Gold Coins 9

Gold certificate 2

ETF 5

Gold Mutual Fund 4

E-Gold 3

Futures and Options 2

Graph 1.3-Graph showing Table showing most preferred form of Investing in Gold

45

50

10

20

30

40

50

Yes No




Inference: Based on above graph 36% of investors preferred option of investing in gold is Jewellery,

14% and 18% in Gold Bullions Bars and Gold Coins, only 4% investors are aware of Gold Certificate

and Futures and Options, Gold Mutual Fund, E Gold and ETF are very marginally preferred form of

investment.

Table 1.4-Table showing pros and cons over Gold Jewellery Investment

Pros

Convenience 26

Fashionable 14

Usage purpose 10

Cons

Making charges 43

Loss of value 5

Safety issues 2

Graph 1.4-Graph showing pros and cons over Gold Jewellery Investment

Inference: Based on above graph 26 respondents invest or purchase in Jewellery due to convenience

and prefer constraints in investing in gold is making charges.

Table 1.5-Table showing pros and cons over Gold Bullion Bars

Pros

Easy form 7

Purity 39

Accessibility 4

Cons

Safety 6

Storage charges 6

Denomination 38




Graph 1.5-Graph showing pros and cons over Gold Bullion Bars

Inference: Based on above graph 80% of respondent preference to invest in gold bullion due to

purity of gold and 80% feels the gold bullion bars will be available with 10 gm and above which may

not suitable for all types of investors.

Table 1.6-Table showing pros and cons over Gold Coins

Pros

Easy form 35

Moderate loss value 10

Denomination 5

Cons

Safety 24

Storage charges 13

Making charges 13

Graph 1.6 Graph showing pros and cons over Gold Coins




Inference: 70% of respondents prefer to invest in gold coin due to easily available and 20% feels

moderate loss value and available in lesser denomination. 48% feels gold coins are not safe involves

some making charges and storage charges.

Table 1.7 Showing pros and cons over Certificate/Deposit Scheme

Pros

Safety 47

Purity 3

Cons

Less return 28

Amount of investment 22

Graph 1.7 Graph showing pros and cons over Certificate/Deposit Scheme

Inference: From the above graph it is observed that 94% of investors prefer to invest in gold

certificates due to safety and feels that it gives less return and the amount of investment required is not

affordable.

Table 1.8 Showing pros and cons over ETF

Pros

Easy 48

Purity 2

Less transaction cost 0

Safety 0

Cons

Knowledge 42

Delivery 8




Graph 1.8 Graph showing pros and cons over ETF

Inference: Based on above graph 96% of investors feels that investment in ETF is very easy form of

investment as it does not require physical form and require proper knowledge to gain access to the

market.

Table 1.9 Showing pros and cons over gold Mutual Funds

Pros

Easy 10

Professional management 30


Cons

Risk 45

No control 5

Graph 1.9 Graph showing pros and cons over gold Mutual Funds




Inference: 60 % of respondents feel that mutual funds are professionally managed and give more

advantage and profit and also feel it is very risky due to market uncertainty.

Table 1.10 Showing pros and cons over E Gold

Pros

Easy 27

Purity 9


Safety 9

Cons

Knowledge 10

Delivery 40

Graph 1.10 Graph showing pros and cons over E Gold

Inference: Based on above graph 54% of respondents feels that it is very easy form of investment and

constraints is there is no physical delivery and the delivery charges are high.

Table 1.11 Showing pros and cons over Futures and Options

Pros

Easy 10

High exposure 31


Cons

High risk 45

Over trading 3

Wrong calls 2




Graph 1.11 Graph showing pros and cons over Futures and Options

Inference: Based on the above graph respondents prefer to invest in futures and options due to high

exposure and less margin and feels that future and options are high risky form of gold investment it may

erode your capital in few seconds.

5.0 Summary of Findings

The data were analyzed using statistical tests that have been described earlier and the results drawn based on

these tests are given below:

46% of investors prefer to invest in Gold than Silver, Platinum and Diamond and the second preferred

investment is Silver.

36% of investors preferred option of investing in gold is Jewellery, 14% and 18% in Gold Bullions Bars

and Gold Coins, only 4% investors are aware of Gold Certificate and Futures and Options, Gold Mutual

Fund, E Gold and ETF are very marginally preferred form of investment.

52% of investors invest or purchase in Jewellery due to convenience and prefer constraints in investing

in gold is making charges.

80% of respondent preference to invest in gold bullion due to purity of gold and 80% feels the gold

bullion bars will be available with 10 gm and above which may not suitable for all types of investors.

70% of respondents prefer to invest in gold coin due to easily available and 20% feels moderate loss value

and available in lesser denomination. 48% feels gold coins are not safe involves some making charges

and storage charges.

94% of investors prefer to invest in gold certificates due to safety and feels that it gives less return and the

amount of investment required is not affordable.

96% of investors feels that investment in ETF is very easy form of investment as it does not require

physical form and require proper knowledge to gain access to the market.

60 % of respondents feel that mutual funds are professionally managed and give more advantage and

profit and also feel it is very risky due to market uncertainty.

54% of respondents feels that it is very easy form of investment and constraints is there is no physical

delivery and the delivery charges are high.

Investors prefer to invest in futures and options due to high exposure and less margin and feels that future

and options are high risky form of gold investment it may erode your capital in few seconds.




6.0 Conclusion

In the current market scenario of high volatile, rapidly changing market place, various avenues for

investment in gold are creating the confusion among the Investors. As per various studies 16,000 tons

of gold is there in Indian households predominantly in the form of jewellery.

There are various alternatives available for investment in gold through options like jewellery, coins,

bullions, ETF, mutual funds, E-gold etc. The present study “A study on various forms of gold

investment” tries to study forms of gold investment available to investors.

The objectives of the study is to understand the various investment options for investors, factors needs

to be aware of and know-how of investing in gold , pros and cons of various forms of investments and to

assist investors in creating awareness about various gold investment options.

For the purpose of study the primary data and Secondary data has been collected. Primary data consists

of questionnaire and secondary data through website, research papers and magazines.

Based on the research it is found that many investor still prefer jewellery, gold coins and gold bullion

bars forms of investment and prefer to invest in ETF and Futures and options which gives more profit and

easy form of investment.

NOTES AND REFRENCES

1. Vidhyashankar S, (August 1990) “Mutual Funds: Emerging Trends In India”, Chartered Secretary, Vol. 20(8), ,

pp.639-640.

2. Lal C and Sharma Seema, (December 1992) “Mutual Fund-A Buoyant Financial Instrument”, Finance India, Vol.

VI (4), pp.811-18.

3. Sanjay Kant Khare , (January 15, 2007) “Mutual Funds: A Refuge for Small Investors”, Southern Economist, ,

pp.21-24.

4. “About Gold-ETF”. nsegold.com.

5. “Gold: A commodity like no other”,World Gold Council. Gold.org

6. Tiddie.com, An Introduction To Gold As An Investment, 26th May 2013

Bibliography:

www.indiamoney.com

www.goldapproximity.com

www.profitndty.com

http://www.indiamoney.com/

http://www.goldapproximity.com/

http://www.profitndty.com/

Documents

A study on Various Investment Avenues for Investors ...ijetmas.com/admin/resources/project/paper/f201607121468379724.pdf · A study on Various Investment Avenues for Investors towards