Commodities like aluminium, copper, zinc, gold and silver witnessed huge correction post covid as fear of unknown took hold of the markets. Whilst the demand recovery for commodities has been much stronger and faster than supply normalisation across the globe, the prices of commodities such as silver and gold haven’t gone up so sharply.

Today we talk about the silver lining, an opportunity in silver funds. Silver as a commodity is a tangible asset which has diverse industrial applications. It is used in renewable energy, jewellery, and in the form of investments. It is widely used in specialised electronic equipments – it is an excellent conductor of electricity, even better than copper. Supply of silver fluctuates in tandem with demand of other metals; however demand is heavily influenced by industrial manufacturing outlook.

Investments in silver can efficiently be made in 2 ways – silver ETFs, which are trading on the exchange & through Silver Fund of Funds (FoF). The benefits of both are – hedge against inflation, diversification, trading flexibility, store of value, no storage cost, convenience to buy in small quantities, no wealth tax, 99.9% pure & no making charges.

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The terms blue-chip stocks and blue-chip funds are frequently used in the context of investing and the stock market. A blue-chip stock is ideally associated with strong management and long-term performance rather than high returns.

These firms have stable businesses, a strong brand name, and a proven track record of delivering long-term, consistent returns. In the Indian context, blue chips include Tata Group, HDFC Bank, SBI, ICICI Bank, Reliance, Infosys, and ITC.

A blue-chip fund is a mutual fund that invests in blue-chip stocks.

Why should you invest in blue-chip funds?

·       Due to the fact that these funds invest in blue-chip businesses that are closely monitored by analysts and fund managers, there is increased corporate governance and oversight.

·       Blue chip stocks are extremely liquid in the market, so they can be bought and sold in large quantities, making them highly liquid even during times of high volatility.

·       Blue chip stocks lower portfolio risk by adding stability, and they are less volatile than smaller and mid-sized enterprises.

·       Blue-chip funds may not give as high of returns as mid- and small-cap funds, but they do provide more stable performance with less volatility. Such funds may not make a lot of money in a bull market, but they also don’t lose a lot in a bear market.

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Rights issue is an offer made by the company to its existing shareholders to subscribe to additional equity shares at a discount. The primary reason for such issue is the infusion of capital (more money) which may be needed by the company for its operations or to pursue any M&A activity. It may also be used to increase the capital base of the company, which may arise in case of regulatory requirements. The shareholders who get the right can either subscribe to the shares at the discounted price, or may also trade the right in case they do not wish to subscribe to it.

Share split is splitting of face value of the share of the company into smaller value. This is generally undertaken to increase the liquidity of the share in the market as the number of shares increase (usually meaning that more retail shareholders can buy the share). Consequently, the shareholders now have additional shares in the company and the price of the shares are adjusted downward to adjust for the split.

Bonus issue is the process of giving an additional share to the existing shareholders of the company without any additional cost in the specified ratio. Therefore, the shareholders get additional shares in the company at zero cost. Much like share split, the market price of the shares adjusts to reflect the additional shares.

While both share split and bonus issues do change the value of the underlying company, many a times these announcements cause a temporary euphoria in the share price of the company.

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Many of us believe that investment and insurance plans offer comparable financial benefits, while others fall prey to unscrupulous marketers offering insurance products with unrealistically high return expectations.

While the primary objective of insurance is to cover the financial risk (via monetary reimbursement) in the event of the untimely death of a wage-earner, the primary objective of an investment is to generate a return in excess of the risk-free rate and to outpace inflation in order to achieve a person’s future goals.

To attract investors, investment products are frequently packaged with insurance products. Nevertheless, it is prudent to keep investments separate from insurance products. Always purchase term plans for life insurance and Mediclaim for health insurance.

The distinguishing factor:

The amount we pay for insurance consists primarily of three components: expense cost (which is very high compared to investment products such as mutual funds), mortality premium; and the remainder is invested according to your chosen investment strategy, which could be equity, debt, or hybrid. However, core investment products such as mutual funds have a much lower expense ratio than insurance products. So, after costs, the initial capital invested is more than insurance plans and may do better than insurance plans in the long run.

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Most Indians always choose fixed deposits as a way to save money because they are popular and easy to operate. Although they are not as tax-efficient as debt mutuals, fixed deposits can be easily replaced with Gilt Funds if there is no need for steady income flow and the investment horizon is greater than three years.

The FD interest is a yearly addition to the taxpayer’s income that is taxed at the investor’s individual income tax rate. Debt funds outperform FDs tax-wise, particularly for investors in higher tax brackets.

Investments held for less than 36 months that are short-term capital gains in debt funds are taxed like savings deposits (Basis the income tax slab of the investor). After taking into account the benefits of indexation, long-term capital gains in debt funds (investments held for longer than 36 months) are only subject to a 20% tax. When comparing fixed deposit and debt fund taxation, long term capital gain taxation is therefore a significant benefit of debt funds.

Mutual funds known as “Gilt Funds” only invest in government securities. They are favoured by conservative and risk-averse investors who wish to invest in the shadow of government bonds.

Investors are protected from credit risk because gilt funds only invest in government bonds. The instruments in which these funds invest are backed by the government. Therefore, there is no default risk attached to these instruments.

These funds’ maturity profiles can vary. While others are medium or long term, some may be short term. These funds also carry interest rate risk, just like all other bond funds.

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