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This Diwali, Gift Thoughtfully and Invest Wisely - Outside View by PersonalFN

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This Diwali, Gift Thoughtfully and Invest Wisely
Oct 18, 2017

Diwali, the festival of lights, is here. Celebrations are marked by stunning fireworks, fervour, and fanfare with friends and family across the world. The ebullience on the streets, particularly in India, is so dazzling with lanterns, rangoli, fireworks, and shopping that it just can't go unnoticed. Essentially, Diwali symbolises the victory of good over evil; light over darkness; hope over despair; and knowledge over ignorance.

Tradition of gifting during Diwali

Diwali is incomplete without the exchange of gifts amongst the friends and family members. You may take this day as an opportunity to express their love and gratitude.

As rightly said by Lucius Annaeus Seneca (a Stoic Philosopher), "A gift consists not in what is done or given, but in the intention of the giver or doer."

So, this Diwali, ensure you give a thoughtful gift to your loved ones; a gift that will touch their hearts and illuminate their life.

Here are some other innovative ways to gift your loved ones this Diwali:

  1. Gift a Holiday or a Dinner - using a debit card/credit card

    Parents make numerous sacrifices, so that their children see a bright future and lead a comfortable standard of living. Therefore, when you become a financially independent adult, consciously do your bit to make your parents happy in return. One such way is gifting or funding a holiday to a place they always wanted to travel and explore. The holiday will be memorable and a manifestation of your morals, principles, and respect for your parents. Likewise, you can purchase a dinner package for your loved ones.

  2. Gift Card - a smart choice

    This Diwali, if you are unsure of what your loved ones would like, a Gift Card can be a smart choice. These are prepaid cards offered by banks and widely accepted today at merchandise outlets and online shopping portals. You can rest easy about the security of the money as it comes with a unique PIN, plus it's easy to handle as opposed to doling out cash. But remember that gift cards usually have one year validity from the date of issue, and cash withdrawals aren't permitted, nor are they reloadable. A gift card provides them with the liberty to buy what they like from a select store.

  3. Add-on Credit Cards

    Add-on credit card is a good choice to gift within family members. For your wife, dependent siblings, dependent parents, and grown-up children an add-on credit card, perhaps with a smaller limit, can prove handy.

    But when you gift them one, subtly explain how to use it thoughtfully to avoid falling into a debt trap. A credit card will introduce them to credit management and its importance for a healthy better credit score (which reflects credit behaviour and credit worthiness).

  4. Aid someone's Education, Healthcare

    At times, certain money-oriented yet valuable experiences, such as quality education, a hobby class, exclusive health check-up packages, etc. are priceless. If you can gift these to them, or aid them in any way, it would be a noteworthy gesture; an exceptional act of kindness.

  5. Investments

    Investing in productive investment avenues in favour of your loved ones can enhance their financial wellbeing and will be a fulfilling experience for you, the giver. You have a variety of options:

    • Mutual Funds

      SIP or Systematic Investment Plan in a mutual fund scheme(s) is a promising mode of investing in mutual funds systematically for your loved ones, which can contribute to their long-term financial goals.

    • Recurring Deposits

      Similarly, consider a Recurring Deposit (RD) for someone who is risk averse. This will add to his/her financial security, earn a fixed and better rate of return vis-a-vis a savings account. However, make sure you explain to the recipient that although the interest earned on the RD may not be subject to tax deduction at source (TDS), the interest is taxable.

    • Fixed Deposits

      A lump sum investment can also be done in a bank Fixed Deposit (also known as term deposit) in the name of the person of your choice. Be wise to select a reputed bank with a solid financial standing before parking money.

  6. Buy a Medical Insurance

    Financially independent adults can consider paying the health insurance premiums for their parents. By doing so, especially in the case of dependent parents, entitles you for a tax deduction under Section 80D of the Income-tax Act, 1961.

    As you know, cost of healthcare is on a rise. And today's lifestyle invites more risk to one's financial health. So, if you can gift your loved ones a health insurance cover by paying his/her premium, it would be a valuable gift.

Go ahead, and buy Gold

Gold has always carried high emotional value, as it is passed on to generations and strengthens bonds. Gold symbolises wealth and holds religious significance; it's a mark of Goddess Lakshmi. One such auspicious day to buy gold is Dhanteras or Dhanatrayodashi, which is the first day of Diwali. As per Hindu mythology it is said, on the day of Dhanatrayodashi Goddess Lakshmi came out from the ocean of milk during the churning of the Sea. And, hence, Goddess Lakshmi along with Lord Kuber (known as the treasurer of the world) is worshipped on this day.

You can invest as well gift gold in in various forms:

  • Physical gold

    If you are an ardent believer of physical gold, ensure the quality of gold is a hallmarked product. Insist on a hallmark certificate to authenticate the purity of gold you purchase. It will have reference of the year of hallmarking, stamp of Bureau of Indian Standards (BIS), carat (24k or 23k or 22k or 18k and so on), and jeweller identification mark.

  • Gold ETFs

    Gold ETF is an open-ended exchange traded fund (offered by mutual funds) which tracks the price of gold and each unit represents ownership of gold asset. Gold ETFs can be purchased on the stock exchanges (demat and share trading account is a must). When you buy gold ETF, you get a contract indicating your ownership in gold equivalent to the rupee amount of your investment. Each unit of gold in the fund that you can buy is equal to 1 gram of gold (some mutual fund houses also offer 1 unit at 0.5 gram of gold). However, the gold is held on your behalf by an appointed custodian for the ETF. You never get to see or receive delivery of the gold you own; but in times of needs the units can be used as collaterals for loans.

  • Gold saving funds

    These are fund of fund schemes (offered by mutual funds) which invest their corpus into an underlying Gold ETF. They benchmark their performance against the prices of physical gold, and attempt to provide returns that closely correspond to the returns of its underlying Gold ETF. And unlike gold ETFs, to purchase gold funds a demat account is not necessary; the units allotted reflect in the mutual fund account statement. Compared to gold ETFs, the expense ratio of a gold savings fund is slightly high, but over the long-term the returns can prove rewarding.

    You can invest the lump sum, through SIPs or whichever way is convenient to you. Having said that, SIPs enable regular disciplined investing plus rupee-cost averaging while you endeavour to compound your wealth. Like gold ETFs, investing in gold saving funds is a smart option with merits -- convenience, low holding cost, no issue on quality, no premiums to be paid on purchase, and no compromise on resale value.

  • Sovereign Gold Bonds (SGBs)

    SGBs are Government securities denominated in grams of gold (1 gram and in multiples thereof) and come with tenure of 8 years with an exit option at the end of 5th, 6th and 7th year. You can approach the concerned bank/Post Office/agent 30 days before the coupon payment date. Please note, a request for premature redemption can only be entertained if you, the investor, approach the concerned bank/post office at least 1 day prior to the coupon payment date. The redemption will happen at the prevailing market price then, and for individuals capital gain tax is exempt.

    The bonds are issued by the Reserve Bank of India (RBI) on behalf of the Government at the issue price, and are tradable on stock exchanges - both BSE and NSE. You also have the option to gift these bonds to your near and dear ones by following legit procedures.

    Currently, there is a discount for purchasing through digital mode: you pay Rs 50 per gram less. Further, SBS are exempt from GST. The application form for SBGs is available with issuing banks and with designated Post Offices/agents. Even simpler, you can even download it from the RBI website. You need to comply with the Know-Your-Customer norms to invest, and the minimum investment allowed is 2 grams, while the maximum buying limit is 500 grams per person per fiscal year, i.e. April to March.

    During the holding period, you earn interest @2.50% p.a. (fixed rate) payable every 6 months. SGBs can be held in demat and paper form. SGB can also be used as collateral in time of need.

To sum-up...

After you've read this article, it's possible that you may take a pledge to spend your money wisely this festive season to create wealth and give the best to our family. So don't procrastinate -- start now!

Also, don't get married to your investments. Track and review your investment portfolio at least once in 6 months to take corrective measures. It need not be done every day or every week if you have adopted enough prudence while investing. With regular monitoring and review of your portfolio, you can timely know if and where you are going wrong, and when a call to action is warranted. You can employ timely corrective measures, so that your investments are well-aligned to accomplish the envisioned financial goals.

If you're looking at comprehensive mutual fund portfolio service we strongly suggest you subscribe to FundSelect Plus and benefit from the SEVEN time-tested, readymade equity and debt mutual fund portfolios. Based on your risk profile and investment horizon, you can choose out of three equity portfolios and three debt portfolios. In addition, you get a readymade tax-saving portfolio as well.Don't miss out on exclusive discounts available and Subscribe Now!

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.

Disclaimer:

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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