|»5 Minute Wrap Up by Equitymaster|
On This Day - 29 APRIL 2011
Will your bank account now make more money?
In this issue:
Is it better to invest in gold or stocks? ...
'Gold Bug' Bill Bonner, answers these questions for you in the exclusive publication - The Guide to Gold
So what if we tell you that if the Reserve Bank of India's (RBI) proposal is accepted then this rate would actually go up? That's right. RBI Governor, Mr. D Subbarao has proposed to 'free the savings rate'. Currently the saving bank interest rates are regulated by the RBI. The reason behind this was to allow people of the weaker sections of the economy earn some returns on their money. If the saving bank rates are deregulated, then it would lead to higher savings rate especially during times such as now when interest rates are on an uptick. Deregulation of the rates would also help the RBI in implementing its policies over the long term as the bank rates would move more easily in the direction set by RBI.
So all would be hunky-dory in the event of rising interest rates. Investors would be happy with higher rates on their savings bank accounts. RBI would be happy as their policies would start to have an effect. Banks would become competitive as they vie for more customers. Each would try to come up with different rates and products to woo the investors. But there are two sides to every coin and there are cons to freeing the rates as well. For instance what would happen in the event of lower interest rates? The interest on the savings bank account would come down as well and may even end up below the current rates.
Every investor knows that selling stocks or mutual fund units of equity funds in less than a year entails short term capital gains tax of 15% (excluding cess). Now, when one scheme is merged with another, the former ceases to exist. In that case, the units of the first scheme are redeemed. Then without returning the units to investors, the same are reinvested into the new scheme.
This is as good as an investor redeeming units from one fund and investing into another. So keep in mind that such mergers are nothing to cheer about and may just add some unnecessary liability on your shoulders.
Unlike gold, silver has plenty of industrial uses. Three fourth of the world's silver is used for making jewelry, mirrors, solar panels, plasma televisions etc. Hence the producers of these items are desperately looking for silver substitutes. Not that they have found any feasible solution yet, but the desperation to reduce dependence on the metal may bring down silver demand. Even the silver miners are worried whether they can sell more of the metal at current rates. Hence if you are amongst those who are betting on the silver rally, make sure that you keep your exposure very limited.
From The Editor's Desk
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