Category: Investments

IDFC has come out with the second tranche of its infrastructure bonds, and I thought I’d do a post on them because I love getting emails from people telling me that I should mail them their bond certificates at the earliest.

IDFC Infrastructure Bond’s second tranche is also covered under section 80CCF, which means the primary benefit of these bonds is the Rs. 20,000 reduction in taxable income it enables over and above the Rs. 100,000 deduction in the case of Section 80C.

IDFC Infra Bonds: Opening and Closing Dates

The new issue started from 17th Jan 2011, and will close on 4th February 2011.

Interest Rates and Options

The bonds offer an 8% interest rate, and you have an option of getting interest paid annually, or get a cumulative sum at the end of 5 or 10 years. The bonds mature in 10 years, but there is a buyback option after 5 years which means that you can sell the bonds back to IDFC after 5 years, and don’t have to wait the maturity period of 10 years.

Details	Series 1	Series 2
Face Value	Rs. 5,000	Rs. 5,000
Interest Payment	Annual	No interest will be paid
Interest Rate	8.00%	NA
Buyback	After 5 years and 1 day from allotment	After 5 years and 1 day from allotment
Buyback amount	Rs.5,000	Rs. 7,350
Maturity amount after 10 years	Rs. 5,000	Rs. 10,800

Minimum Investment

The minimum investment in these bonds is Rs. 10,000, and while there is no maximum limit, you can get a lot more than 8% for shorter durations for your money in bank fixed deposits, so it makes sense to not buy more than Rs. 20,000 worth of these bonds.

IDFC Infrastructure Tranche 2 Bonds: Physical and Demat Form Available

These bonds are available in physical as well as demat form, so you if you don’t have a demat account, you can still purchase these bonds .

Credit Rating and Secured Bonds

ICRA has assigned LAAA to these second tranche bonds which indicates stable outlook and highest safety. Fitch has assigned AAA(Ind) also indicating stable outlook.

These infra bonds are secured as well.

Tax Proof for the Bonds

If you buy the bonds in physical form then you will receive a receipt, and some people have indicated that this receipt has been used by them as tax proofs. I’m not sure if everyone is able to do so, but that’s one option, and you should check with your company CA to see if this will do.

Once the bond is allotted, you will get an allotment advice indicating that you have bought the bonds, so you can use that allotment advice for tax proof. Keep in mind that you should update your mailing address attached to your Demat account and trading account, so that there are no issues later on.

Last time around, there was a very good feature with the IDFC bonds where they made a web page where people could just input their application number, and retrieve the allotment advice. They could have it this time as well, so don’t lose your application number.

How to buy the IDFC Infrastructure bonds?

You can buy them through a trading account like ICICI Direct; by filling up the physical forms, and submitting them in a branch that’s accepting them; or through an IFA (Independent Financial Adviser).

I don’t have a list of banks you can go to, but I see that KMCC, ENAM, HDFC Bank, ICICI Securities, JM Financials and IDFC Capital are the lead managers, so if there is a branch of one of these near your house or office, you can try them out.

One last word to let you know that this is not the website of IDFC or the lead managers, so writing a comment and email telling me to send the bond certificate to you or do the “needful” isn’t going to help you.

Now, as is custom – ignore what I just said and write a comment to tell me to send you the bond or do the needful at the earliest.

Also read about the REC Infrastructure Bonds.

This is yet another post from the Suggest a Topic page, and this time we’re going to look at the E-Gold and E-Silver series from NSEL (National Spot Exchange Ltd.)

NSEL enables you to buy gold, silver and copper in electronic form, and hold it in a Demat account.

This opens up another avenue for people interested in buying metals electronically, and now you have another option in addition to gold ETFs, and trading in the commodity exchange.

An Overview of buying E-Gold, E-Silver or E-Copper through NSEL

Opening a separate Demat and Trading account for trading in NSEL

First of all you will have to open a Demat and Trading account with one of the authorized participants with NSEL.

This has to be a separate trading account from the one that you might be using for trading stocks.

There is a list of authorized depository participants (DPs), and you can open an account with any of these to start trading in NSEL.

You can expect to pay an initial charge of about Rs. 350 or so for opening the Demat account depending on who you open this with, and then expect a slightly lower AMC (Annual Maintenance Charge) of about Rs. 250 or so every year on this account.

Some DPs might offer you a scheme where if you give them a refundable deposit of Rs. 2,000 they will waive off the opening charges, and subsequent AMC, so you can check that up.

To open an account go to this link and look up a member in your city, and talk to them.

You will require documents such as PAN, 3 passport photographs, bank proof, and address proof.

Buying E-Gold, E-Silver or E-Copper through NSEL

Once you have your account set up, you can then carry out transactions. You can buy gold, silver or copper, and one unit of the E-Series is equivalent in the following way:

1. E-Gold: 1 gram

2. E-Silver: 100 grams

3. E-Copper: 1 kilo

The commission to transact is about 0.5% if you take the delivery, and 0.05% for intra – day trading. I use the word about because these might differ from one broker to the other, and I wanted to give you gauge of what you can expect.

You can trade the E-Series from 10:00 in the morning to 11:30 in the night on weekdays, and the settlement is done on a T+2 basis.

The price of the three contracts is visible on the website of NSEL, and once you buy a contract, it will be credited to your demat account after settlement.

Converting E-Gold, E-Silver or E-Copper in Physical Form

You can hold the E-Series products in Demat form, and you also have the option of converting it into physical form – this is known as rematerialization.

There are two key things to note here:

1. Rematerialization is currently not done in every city, so if you need this option, then check with the agent first.

2. VAT: When you rematerialize you will have to pay some rematerialization charges (which will be in the range of Rs. 200 for 10 grams gold), but the VAT might be a bigger amount based on how much electronic quantity you hold.

Currently, there are no holding charges, but I don’t know how far this will continue, so you can expect to pay holding charges sometime in the future, if not immediately.

Information I couldn’t find on E-Series Products

There were a couple of things that I wanted to find out, but wasn’t able to get to, and I thought they were meaningful enough to be shared here, and see if anyone else knows about them.

Does SEBI regulate these E-Series Products?

If someone faces an issue with NSEL, or the E-Series products, then who should they address it to. Can they go to SEBI? Is SEBI actively regulating it or does it fall under the purview of some other agency.

Does anyone hold the underlying physical gold?

Gold ETFs hold underlying physical gold equivalent to the number of units of funds they have issued, and they publish the data periodically, but I didn’t find information on who holds the physical gold, or if at all it is being held at somewhere at all times.

If everyone who holds a E-Series contract requests for gold rematerialization then what will happen.

Conclusion

There are no silver ETFs right now, so this is an alternative if you’re looking to invest in silver, but there are gold ETFs that you can look at if you’re looking to invest in gold.

This product doesn’t have a long track record, so even if you are interested in buying E-Gold or E-Series – I’d say it’s better to be safe than sorry, and start off with smaller quantities.

Sourabh left a comment with a question about Ex – Dividend, Record Date, and Declaration Dates with respect to dividends, so I thought I’d do a post on it with an example because there are quite a few dates involved, and it can sometimes get overwhelming.

Let’s take an example of Oil India Limited’s Final Dividend to see how this works. The first date is of course the date on which the dividend is announced.

Normally, this is when the Board of Directors recommend a dividend, and it is still subject to shareholder’s approval.

In our example – Oil India’s Dividend was recommended on May 26 2010, when their directors said that the company will pay a dividend of Rs. 16 per share, if it’s approved by the shareholders in their AGM (Annual General Meeting).

The AGM was held on 25th September and the dividend was approved by the shareholders.

But, the question is who gets the dividend?

Since shares are traded throughout the year, and dividends declared just a few times in a year – it becomes necessary to fix a date, and say that whoever owns the shares on this particular date will be entitled to the dividend.

This is called the “Record Date”, and in our example this is 25th September 2010, so whoever has their name in the company’s books on 25th September 2010 will get the 16 rupee dividend.

However, there is another more important date, which is called the “Ex-Date”. There is a time gap between when you buy a share, and when your name gets on to the company records, so if you buy Oil India shares on 25th September – your name will not be in the books of the company on 25th itself, and you won’t get the dividend.

You need to buy the share before the Ex Date because that ensures that there is enough time for your name to get into the company’s registers, and get you the dividend.

In this case the Ex – Date was 16 September 2010. This was much earlier than the 25th September 2010 Record Date because the company closed its books from 18th September to 25th September, and in other cases (especially of interim dividend) the Ex Date can be just one or two days earlier than the Record Date.

So, if you want to buy a share for its dividend, then make sure you purchase it before the Ex Date.

Do keep in mind however, that the share will lose in value on the Ex – Date because the person who buys the share on that date will not get the dividend.

How can you find out the Ex Date?

The easiest way to find the Ex Date is to lookup the info from the NSE Website. You can input the ticker on the search box on the home page, and when the price details open up on the next page, scroll to the bottom of the page and click on “Corporate Actions”, and this will open up a table that shows you Ex Date for each announcement among other things.

I don’t think it makes much sense to buy a share a few days before the Ex Date in order to get the dividend because the share will lose in value as soon as you hit the Ex Date, so I’d say knowing this concept is good for your knowledge, but don’t try to buy stocks too close to the Ex Date because the market is efficient enough to reduce the price of the share with the value of the dividend when the Ex Date is reached.

Arun left a comment on the Infrastructure Bonds Calendar post about the extension of the last date of the IFCI Infrastructure bond, and since a lot of people were asking about this I thought I’d do a mini – post to inform everyone that the last date for these bonds has been extended to 12th January 2011.

So, this is useful information for everyone who is looking to invest in infrastructure bonds, and is fighting deadlines to submit the proof.

Thank you Arun.

photo © 2008 Felix O | more info (via: Wylio)

Couple of weeks ago, I wrote about Monthly Income Plans or MIPs, and this week I’m going to write about a similar monthly income scheme from the Indian post office called the Post Office Monthly Income scheme.

This is a fixed income scheme which provides you a guaranteed return on your investment, and is meant for people who are looking for a monthly source of income without taking any risk at all.

Where the mutual fund MIP invests a part of its assets in equity, and even gold in some cases – and may sometimes even get you a higher than 10% return (with commensurate risk of course) this scheme has a fixed rate of return and is meant for people looking for an ultra safe investment.

Here are some features of this scheme.

Post Office MIS Interest Rate

This is a scheme from the Indian postal service that earns you an interest of 8% per annum, and generates a monthly income for you.

So if you invest Rs. 100,000 in it – your annual interest at 8% will be Rs. 8,000, and you will get Rs. 666.67 monthly.

Post Office MIS Tenure

The maturity period of the scheme is 6 years, at the end of which you will get your money back. You cannot redeem your money within a year, but you can redeem it after that upon paying a penalty.

Here is how that works.

Less than 1 year: MIS can’t be encashed.

1 – 3 years: You are penalized 2% of deposit.

After 3 years: You are penalized 1% of your deposit.

5% Bonus

If you retain your Post Office MIS till maturity (6 years) – at the end of the time period you will be given a 5% bonus on your deposit.

Minimum and Maximum Investment

The minimum sum you can invest is Rs. 1,500, and you can go up to Rs. 450,000 in case of a single account, and Rs. 900,000 in case of a joint account.

Tax on Post Office MIS

There is no TDS on the Post Office MIS, but the interest income is taxable in your hands. The interest income from post office MIS used to be tax free under section 80L, but that section has been withdrawn from April 1 2005.

Interest can be automatically credited to your bank

At the time of opening the scheme you can give in your bank account details, and interest will be automatically credited to your bank every month.

Transfer from one post office to another

There is a provision that allows you to transfer your money from one post office to another. So, if you opened your account in one post office, and moved to another place you can fill up a transfer form with them, and move your scheme to another post office.

Conclusion

This scheme is meant for people who are looking for an ultra safe investment and a regular source of monthly income on top of it. A lot of retired people will fall under this category, and if you fall under that category then you need to evaluate other options like the Senior Citizens Savings Scheme before you invest in this scheme. I”ll cover that scheme in the days to come, and if you have any questions about this particular scheme or any other observations please leave a comment.

What is a Demat Account?

I got an email last week from someone asking about opening a demat account, and in the SBI and IDFC thread you might have noticed that there are several people who don’t have demat accounts, but will have to open one soon because nowadays you need one even to invest in these bond issues.

Let’s start with what a Demat account is, and then we can move on to the several options currently available in India.

My grandpa used to have a black briefcase where he stored all his physical share certificates.

Eventually he dematerialized all his shares and moved them to an electronic briefcase, which is how he described his Demat account, and I think this is quite apt to understand the concept.

A Demat account is like a brief case where you store your shares and bonds electronically.

In India there are two Depositories – NSDL and CSDL – and you can think of these depositories as banks that hold your shares and bonds in electronic form.

A regular investor can’t deal with a depository directly, and you have to deal with their agents which are called Depository Participants (DPs).

There are hundreds of DPs in India, and you can open a demat account with one that suits you in terms of price and convenience. Normally, people open a Demat and a trading account with the same institution as it makes transactions cheaper, and is more convenient to get started as well.

So you could have a trading account and a DP account with SBI or ICICI Direct. It is in fact better to have trading and DP account with the same organization because in those cases you are waived off the DP transaction fees.

Effectively, you are using an agent in the form of a depository participant to avail the services of a depository which are storing your shares and bonds electronically.

There are hundreds of DPs in India, and NSDL provides a very comprehensive list of DPs along with their fees here and here (this data might not be up to date though).

Partial List of Depository Participants in India

If you clicked through the above links to the entire list of DPs then you’ll notice that there are a large number of DPs in India, so for this post I’m trying to create a list which has got some of the better known DP names with only their annual maintenance charges covered.

There are several other charges, but including all of them here will make comparison difficult. I have included a link to the source in this table so you can go check the details there. Since these prices are relatively low – you should think about convenience also, and see if your bank offers demat services, and if you can open one there.

Name	Annual Maintenance Charge	Detailed Charges
SBI	Rs. 400 Rs. 350 for customers receiving statements by e-mail	Link
ICICI Bank	Rs. 500 Rs. 450 for customers receiving statements by e-mail	Link
HDFC Bank	Rs. 750 for less than 10 transactions Rs. 500 for 11 – 25 transactions Rs. 300 for greater than 25 transactions	Link
Citibank	Rs. 250	Link
HSBC	Rs. 750	Link
Sharekhan	Rs. 75 per quarter (300 annually) Deposit of Rs. 500	Link
Axis Bank	Rs. 500 p.a. for customers authorizing Bank to debit DP charges from bank account maintained with Axis Bank, and 2,500 for others.	Link
Karur Vysya Bank	Rs. 250 per annum	Link
Sharekhan	Rs. 300 under two plans, and Rs. 500 under another	Link
Bank of Baroda	Rs. 350 per annum	Link

How to open a Demat account?

Once you decide where you want to open your Demat account – contact their representatives, and they will get you started.

You will need the following documentation in order to open a Demat account, so keep this handy while contacting the DP.

Proof of Identity: This includes PAN card, driver’s license, passport, voter card etc.

Proof of Address: This includes the above documents and bank passbooks, identity cards issued by Centre or State governments etc.

Passport size photo

Pan card copy

You will need the following details while opening the demat account:

• Name of account holder
• Mailing address
• Bank account details
• Guardian details for minors
• Nomination declarations
• Standing instructions

When you contact the DP – their agent will let you know if they need any specific documentation, or if you need answers to any other specific questions.

It used to be that only equity investors cared about having a demat account, but with a lot of bond issues coming out in only demat form – I think more and more investors will need to open a demat account, and if you don’t already have one, then do think about spending this four or five hundred bucks per year to take advantage of electronic stock and bond holding.

This post should get you started on what a Demat account is, how and where you can open one, as well as the documents required to open it. Please leave a comment if you have any questions or other feedback.

This is the first post based on the Suggest A Topic page that I created recently, and the title of the post is exactly what was written in the comment.

I’ve created that page to get suggestions on topics from readers, and have them organized at one place instead of the usual emails and comments I get. This way is better for me to keep track of the post suggestions as they don’t get buried in my email, and its better for the person suggesting it because the suggestion is out where everyone can see it. So, to me it is a win – win.

Now, to the post itself.

What is the Pre – Open Call Auction Session?

The NSE and BSE introduced the pre – open call auction (pdf) sessions from October 18 2010, and these sessions are intended to reduce volatility and provide better liquidity in the markets.

The pre-open session lasts for 15 minutes from 9 AM to 9:15 AM, and is divided into three parts:

1. First 8 minutes: In the first 8 minutes orders are placed. They can be canceled or modified during this time period also.
2. Next 4 minutes: In the next 4 minutes price discovery will be done, and orders will be executed.
3. Next 3 minutes: The next 3 minutes are used to facilitate the transition from pre – open to regular session.

Right now, only the index stocks are included in this session, and you can place both market, and limit orders as part of the pre – open session. A price band of 20% is applicable on all securities in the pre – open session.

How does the Pre-Open Call Auction Session Work?

The way they go about doing this is instead of executing trades right from the get go, they take all orders, and then arrive at an equilibrium price.

The equilibrium price is the price at which the maximum number of shares can be traded based on the demand and supply quantity and the price.

Consider this example:

In this example you can see various buy and sell orders at different price levels.

The green side is the buy side which shows that there is a bid for 5 shares at Rs. 50, 4 shares at Rs. 51, and so on till Rs. 54 at which there is just demand for 1 share.

On the red side you can see that you can sell 5 shares at Rs. 54, but only 4 at Rs. 53, 3 at Rs. 52 and so on. There is a cumulative column at the end of both sides which shows you the total number of shares that can be bought or sold at any given price.

If you were to create a demand – supply curve based on the price and cumulative values, it would look like this.

The intersection of this curve is the price at which you can conduct the maximum transactions, and that’s the equilibrium price that comes out from this pre-open call auction.

You can see this for yourself:

• At Rs. 50 there are 15 buyers but just one seller so only 1 share will be traded.
• At Rs. 51 there are 10 buyers but only 3 sellers, so only 3 shares will be traded.
• At Rs. 52 there are 6 buyers and sellers so 6 shares will be traded.
• At Rs. 53 there are 10 sellers but only 3 buyers.
• And at Rs. 54 there are 15 sellers but only 1 buyer.

So, in our example at the end of the price discovery phase the price will be determined at Rs. 52, and the orders that can be executed at that price will be executed. The other orders can be carried forward to trade in the regular market.

In this example, if the normal method of determining price would have been used then some trades would have happened on Rs. 54, and Rs. 53 in our example, and by determining the price at an auction like this at least theoretically the exchange is smoothing out some of the volatility that occurs in the opening moments of the market.

If there are more than two prices at which the demand supply matches then they see which of them has the minimum imbalance, and use that as the price. If both the prices create equal imbalance, then they look at the price which is closest to the last closing price and make that the equilibrium price.

What is its significance on the market?

You will hear a lot of folks say that the exchanges have implemented this change, which takes away from the fact that this was something that SEBI had asked the exchanges to look into, and implement, and is used in other countries as well.

I guess until we see a day with a lot of volatility and the market opening with a big gap, and then that day is studied for impact from this change we will not know for sure how this is working, but in theory this sounds like a better system than the one we had earlier.

For retail investors – it is always a good idea to place a limit order instead of a market order so that if the market moves violently you don’t lose out any money, especially in a one off black swan type of event. You could just keep a limit order close to the currently traded price or closing price if you don’t want to wait for your transaction to go through, but developing this habit will hold you in good stead in the long run.

Also, there is some excellent material and a great video by BSE on this topic, and those of you who want to explore further can check them out. All the details for this post has been gathered from that material itself.

Here are the links:

Introduction to Call Auction Trading

Call Auction Brochure

YouTube Video on Call Auction Trading by BSE

IRR stands for Internal Rate of Return, and last week reader Sandeep emailed me asking about this, so I thought I’d do a post on the subject.

It’s impossible to understand IRR without understanding the concept of Net Present Value (NPV) first, so let’s begin with NPV.

You know that the cash that you receive today is more valuable than the cash you receive two years down the line or anytime in the future due to inflation. So, anytime you see cash flows going out in the future you will ask yourself how much is all this money worth today? We are all familiar with this concept because we see it every day in our life, and is relevant to a lot of things especially retirement planning, and looking at things such as how much money you will need for retirement.

So let’s say I come to you with a proposal for a project and say that you invest Rs. 1 million in the beginning and after that the project will start generating cash without any further investment, and here is how the cash flows will look like.

Time Period	Project A
0	(1,000,000.00)
1	450,000.00
2	400,000.00
3	350,000.00
4	300,000.00
5	250,000.00

Since it’s me you’d say why did I go through all this trouble of digging up the numbers; take out your check book, and write me a check – thank you!

But imagine for a moment, it was a family member – you would be on your guard then wouldn’t you?

You would obviously want to know if this is a better deal than what your bank gives you, and for that you can calculate the Net Present Value of these cash flows on the rate of interest your bank gives you which is also called the Discount Rate for this purpose. Let’s assume that the discount rate is 8% in this case.

To calculate the NPV of this project you will discount each cash flow with the discount rate keeping in mind the time lapse.

Your calculations will look something like this.

Time Period (T)	Project A	Discount Rate (DR)	DR + 1	(DR + 1) ^ T	NPV of Cash Flow{Cash Flow / (DR +1)^T}
0	(1,000,000.00)	0.08	–	–	(1,000,000.00)
1	450,000.00	0.08	1.08	1.08	416,666.67
2	400,000.00	0.08	1.08	1.17	342,935.53
3	350,000.00	0.08	1.08	1.26	277,841.28
4	300,000.00	0.08	1.08	1.36	220,508.96
5	250,000.00	0.08	1.08	1.47	170,145.80
				NPV	428,098.23

An NPV of more than 0 means that you will make more than your alternative investment (the fixed deposit) in your case, so looking at this number makes you really happy.

To sum up – NPV is the sum of all cash flows at a discount rate that represents your alternative investment potential.

What is IRR?

Internal Rate of Return (IRR) is that rate of return at which the NPV from the above investments will become zero. It is that rate of interest that makes the sum of all cash flows zero, and is useful to compare one investment to another.

In the above example if you replace the 8% with a 25% the NPV will become zero, and that’s your IRR. Hence, the statement that IRR is the discount rate at which the NPV of a project becomes zero. How did I know that the I need to use 25%? I used the Excel formula called IRR to find that out. Manually, you will have to do a bit of a hit and trial to arrive at that, and if you have Excel handy then that’s the easiest way to calculate IRR.

Input your cash flows, select IRR from formulas, and get the result. This link explains how to calculate IRR using Excel.

Time Period	Project A	IRR	IRR + 1	(IRR + 1) ^ T	NPV of Cash Flow
0	(1,000,000.00)	0.25	–	–	(1,000,000.00)
1	450,000.00	0.25	1.25	1.25	360,000.00
2	400,000.00	0.25	1.25	1.56	256,000.00
3	350,000.00	0.25	1.25	1.95	179,200.00
4	300,000.00	0.25	1.25	2.44	122,880.00
5	250,000.00	0.25	1.25	3.05	81,920.00
				Total of Cash Flows	0

The IRR is useful if you have to compare with one project with another that has different cash flows at different times.

So, to add to our example – let’s say you are presented with the following two options to invest your money in – which project will you choose?

Time Period	Project A	Project B
0	(1,000,000.00)	(1,000,000.00)
1	450,000.00	250,000.00
2	400,000.00	300,000.00
3	350,000.00	450,000.00
4	300,000.00	450,000.00
5	250,000.00	450,000.00

Quick mental calculation will show you that the cash flows from the second project exceed the first one, but you also notice that they do’t exceed by much and are also at later years, so it might be worth your time to calculate the IRR. In this case the IRR is 22.99% as shown by the table below because that is the discount rate at which the NPV becomes zero, or close to zero in this case due to rounding errors.

Time Period	Project A	IRR	IRR + 1	(IRR + 1) ^ T	NPV of Cash Flow
0	-1000000	0.23	–	–	(1,000,000.00)
1	250000	0.23	1.2299	1.23	203,268.56
2	300000	0.23	1.2299	1.51	198,326.91
3	450000	0.23	1.2299	1.86	241,881.75
4	450000	0.23	1.2299	2.29	196,667.82
5	450000	0.23	1.2299	2.81	159,905.54
				Total of Cash Flows	51

Your new information tells you that one project has an IRR of 25% while the other has an IRR of 23% so that gives you more information to make your decision from.

So, this is the way IRR helps you in making a decision when comparing different projects, and is one of the several tools that can be used in evaluating any project that has cash flows distributed over the years.

To learn more about this concept head over to this link which does a great job of explaining IRR and getting into the details also. and leave a comment if you have any questions or clarifications, or juts see an error somewhere.

photo © 2006 Melissa Wiese | more info (via: Wylio)

There are several gold ETFs in India, but no silver ETFs at all, and this makes it difficult for investors to take positions in silver (if they are so inclined), however there are a few other ways of getting exposure to silver, and I’ll talk about four of them here.

1. Milestone Bullion Series 1: I’ve already written about this option about a month ago, when reader Prasanna sent me details about it. This is a structured product, and the minimum investment needed to get into this product is Rs. 5 lakhs, so this is clearly not for everyone.

The way it works is that they take the money and invest in a portfolio with the following assets:

1. Silver: Up to 40%
2. Gold forwards / Gold deposit schemes: up to 40%
3. Gold linked structure: up to 30%

The fee charged is as follows:

• One time set up fee of 2% or 2.5% in case of investment less than 10 lacs.
• Annual Management fee of 1.5% of the committed amount.

2. Commodity Futures: You can trade in commodity futures in India, and silver is one of the commodities that get traded, so you could potentially take a position in silver by trading on its futures. You can enable commodity trading by a special request to your broker, and thereafter trade in all the commodities available in exchanges like MCX and NCDEX, which include silver futures as well.

3. National Spot Exchange Limited (NSEL): NSEL is a relatively new player in the market, and allows you to trade in e-Gold and e-Silver, and this is another way of getting exposure to silver. You can open your account with one of their Depository Participants, and there’s also an option to take physical delivery if you’re so inclined. The futures unit of silver is 100 grams of silver, and you can take delivery in 100 grams, 1 Kg, 5 kg or a combination. ET reports that NSEL is Shariah Compliant as well.

4. Buy US silver ETFs from your trading account: Reader Venkat left a comment a few days ago about buying US silver ETFs by enabling overseas trading through your brokerage. You can ask your broker to enable overseas trading to you, and once enabled – you can buy and sell selected securities that trade in the US from your trading account. Venkat sent a brief list of silver securities also, and I see that there are quite a few silver options in there including silver futures, silver mining companies, and silver ETFs as well, so this option is something that you can also consider if you are interested in investing in silver.

As I said earlier, I have not been interested in buying gold or silver, so I don’t have first hand experience with any of these options listed above, but they are options for people interested in buying silver or getting exposure to silver in India, and if you’re interested you can pursue them further.

If you have any first hand experience or any other insights to share on this, please leave a comment.

I’ve been asked on how someone can find the daily gold rate in India a few times in the past couple of weeks, and I think there is a little bit of confusion when people see different places selling gold at different prices, and people feel that they’re being cheated or just wonder why there are so many different prices.

You see different gold rates at different places because some websites show the rate of gold futures, some of gold coins, others wholesale gold, and in some cases it is the NAV of a gold ETF.

To make matters worse, there exists a difference even when the same thing is being sold. So, you can expect a price difference between the gold coin between from one jeweler to another, between various banks, and of course between a bank and a jeweler.

When you decide to buy physical gold – make sure you find out where you are going to sell it after-wards. It is not correct to assume that a higher price at the time of buying will lead to a higher price at the time of selling too.

You could face a situation where you paid a premium to buy gold, but had to sell it off at a discount, so make sure you research where you are going to sell your gold very carefully before you make your buying decision.

Given all this – here are some options on where you can look for gold rates in India.

Track daily prices of gold

If your goal is track the day to day movement of gold, then the most convenient way for you is to add a gold ETF in your online portfolio tool like Rediff Money Portfolio or Moneycontrol’s portfolio.

This will give you a good measure of how gold prices have moved in the past because Gold ETF NAVs reflect the underlying gold they hold. However, this price is only good to track movement of gold and not buying physical gold because these are prices specific to the ETFs. So, if you add the Quantum Gold ETF to your portfolio then one unit of that ETF reflects half a gram of gold, but you can’t really buy a half a gram gold coin, though I think some banks were giving half a gram gold coin free with bigger purchases some time ago. Did anyone get a free gold coin like that?

If you don’t want to create a portfolio specifically for this then the link below will show you the NAV of Benchmark gold ETF.

S. No.	ETF	NAV on Nov 8 2010	Source
1.	Benchmark BeeS	1967.73	Link

Buy Gold Coins

If you want to find gold rate in India because you are interested in buying gold coins, then you will have to use a combination of online and offline search.

The online search works for banks which sell gold coins like SBI because you can see the rate of SBI’s gold coins online on their website, which gets updated frequently.

However, the rate of post office gold coins are not available online, so you will have to necessarily go to a post office to find out the post office gold coin rate.

I haven’t found any prominent jewelers displaying their gold coins rate online, so you will have to visit your nearest showroom to see what the going rate is, or if you know of a place online then please leave a comment, and I’ll update the post.

Here is a list of banks selling gold coins, and links to their prices online. Keep in mind that these gold coins are sold by banks at a premium, and they don’t buy them back, so you will have to go to a local jeweler to sell it. Several readers have faced trouble doing this because the jeweler insists on deducting a greater percentage than they would have on gold coins sold by their own shop. So, please research this carefully before making any purchase decisions.
Apart from this all major newspapers publish gold rates, and you can view it on their site, so if you click on Business Line’s website – you will see the day’s gold rate on the top right.

S. No.	Bank	20 gms gold coin Price on 8th November 2010	Source
1.	HDFC Bank (includes sales tax, whereas the other banks below don’t)	47,549	Link
2.	SBI	43,285	Link
3.	Kotak	45,327	Link
4.	Corporation Bank	46,559	Link
5.	Bank of Baroda	42,507	Link
6.	Bank of India	43,451	Link

Conclusion

Unfortunately, finding something as elementary as the gold rate in India sounds simple enough, but when you dig deep into it, there are several options you have, and that makes the task slightly complicated.

Where you check largely depends on what your end – goal is, and one thing I’d want to emphasize again is that just because you are paying a premium or a higher price at the time of buying gold doesn’t guarantee that you will get a premium at the time of selling also, so make sure you research how are you going to sell your gold before you make any buying decisions.