Could members kindly share any new findings on investing and utilizing pledged investments as a cash component in NSE?
SGBs still lead
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I still mainly use money market funds. Last 3 year CAGR 7.4%
And also some portion in Gilt funds.
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Do you feel that Sovereign Gold Bonds have lost their appeal after the new tax rules, given the limited interest income and the issue price–market price mismatch?
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Of course. But now most of the excess premium is gone because government deliberately and retroactively removed the tax benefits. And it is the only option that accounts as a cash component but not based on cash/INR.
Money market funds.
Isn’t all moneymarket funds based on cash/debt/INR - specifically CDs and CPs? The returns from SGB are primarily from Gold returns. I meant it is the only thing that may rise when INR goes into a free fall.
And what if INR appreciates? Basically SGB is also linked to INR.
Now if you are so sure inr will depreciates and if everybody thinks so, bond market would have already priced that in and it will reflect in the price. Market always discounts future.
Now even if it doesn’t appreciate, but doesn’t depreciate as much as expected, then bond prices will catch up.
Keeping all things aside, if gold comes down and sgb is redeemed, then you can even lose capital.
Risk wise, sgb is at a much higher risk than money market funds.
I mean in the extreme case we may hit 88. But, RBI would rather fill up it’s forex reserves by buying dollar/gold before it even comes close to that.
if everything is priced in, there is no point in investing in anything anywhere.
Agree.
Disagree. Gold is gold and has stood the test of time for centuries longer than all these new financial instruments. So gold backed instruments are less riskier than debt backed funds.
I am not saying inr will appreciate or depreciate. But there is a possibility to move on either sides.
The obvious is always priced in. It’s the deviation from the obvious which leads to volatility.
Do you even know how risk is calculated? There is no way debt funds give you higher standard deviation than gold.
If gold was less riskier, it would give less returns than debt funds.
If everybody feels gold is less risky than debt, then there would be extra demand for gold and less for debt. Price equilibrium kicks in and returns would be adjusted. Do you undertand return pay off?