Your Questions About Disadvantages Of Gold Investment

David asks…

What is balance of payments? and why balance of payments be always in equillibrium?

Hey guys pls help me out. wid what balance of payments exactly is? and why should we have balance of payments in equillibrium? i mean its lucrative for ny country if there BOP is in surplus

financi4 answers:


Balance of payments can be difficult/confusing

What does it mean?
The balance of payments, (or BOP) measures the payments that flow between any individual country and all other countries. It is used to summarize all international economic transactions for that country during a specific time period, usually a year. The BOP is determined by the country’s exports and imports of goods, services, and financial capital, as well as financial transfers. It reflects all payments and liabilities to foreigners (debits) and all payments and obligations received from foreigners (credits). Balance of payments is one of the major indicators of a country’s status in international trade, with net capital outflow.

A very good article explaining this can be found in the Consise Encyclopedia of Ecconomics. It can be read

and starts

Few subjects in economics have caused so much confusion—and so much groundless fear—in the past four hundred years as the thought that a country might have a deficit in its balance of payments. This fear is groundless for two reasons: (1) there never is a deficit, and (2) it wouldn’t necessarily hurt if there were.

The balance of payments accounts of a country record the payments and receipts of the residents of the country in their transactions with residents of other countries. If all transactions are included, the payments and receipts of each country are, and must be, equal. Any apparent inequality simply leaves one country acquiring assets in the others. For example, if Americans buy automobiles from Japan, and have no other transactions with Japan, the Japanese must end up holding dollars, which they may hold in the form of bank deposits in the United States or in some other U.S. Investment. The payments of Americans to Japan for automobiles are balanced by the payments of Japanese to U.S. Individuals and institutions, including banks, for the acquisition of dollar assets. Put another way, Japan sold the United States automobiles, and the United States sold Japan dollars or dollar-denominated assets such as Treasury bills and New York office buildings.

Although the totals of payments and receipts are necessarily equal, there will be inequalities—excesses of payments or receipts, called deficits or surpluses—in particular kinds of transactions. Thus, there can be a deficit or surplus in any of the following: merchandise trade (goods), services trade, foreign investment income, unilateral transfers (foreign aid), private investment, the flow of gold and money between central banks and treasuries, or any combination of these or other international transactions. The statement that a country has a deficit or surplus in its “balance of payments” must refer to some particular class of transactions. In 1991 the United States had a deficit in goods of $73.4 billion but a surplus in services of $45.3 billion.

This article goes on to explain the concept of advantage/disadvantage of surplus and deficit.

I hope this helps

George asks…

what is the financial formula to measure risk (standard deviation) of gold investment?

i want to make some risk and return analysis, and compare gold and other financial asset such as bond, stock, reits commodities and etc.

financi4 answers:

First off, the formula for standard deviation is available on 1.2 billion websites. Doing a research project and not being able to find the formula for standard deviation on the web does not bode well for your research project.

Second off. You have some problems with this approach. Gold is inherently undiversified. Stocks are diversified. That means gold starts out at a disadvantage. “Bonds” can mean anything from short-term AAA debt to defaulted pennies on the dollar crap.

Third off, the risk/return analysis suggests that perhaps you can come up with a return. If you knew returns, then we have an optimality theory for portfolios invented by Markowitz in the 50’s (he won the Nobel prize for it). You may have noticed that almost nobody talks about their Markowitz optimizer. The problem is that the inherent return in equity is not known to say nothing of the inherent return in gold (although I’ll bet if I got liquored up I could argue eloquently that the inherent return in gold is the inflation rate).

Fourth, if you are looking at volatility going forward for a wildly traded commodity like gold, you shouldn’t be using standard deviation at all, you should be using implied volatilities from option data which is something like teh marekt’s estimate of forward vol. It’s like 40% for gold and less for all other assets you have listed.

Steven asks…

How to invest in gold?

Do i just buy gold and put it in my safe? how do i sell it later? is it really a very good idea? anyone have details on investing in gold? have you done it? did it work out good?

financi4 answers:

As others have said you can own paper gold or physical gold. Paper gold is like an ETF, gold stock, or other some sort of paper product which has a claim on gold. That claim may or may not be convertible to you in real physical gold. You can not buy gold from any bank in the US. If you live in Canada then you can acquire it from some banks directly.

I always take physical possession of my gold and in fact I just got back from the post office where I had delivered to me 6 ounces of gold. You want physical gold in your hands before moving into paper gold in any form. The best way to own gold in in the form of coins minted by government. In the US you want American Eagles or pre 1933 US $20 gold pieces in raw ungraded condition see examples here.


WARNING!!!! If in the US DO NOT BUY FOREIGN GOLD. The only exception to this is fractional gold such as 1/10th 1/4 ounce, 1/2 ounce Canadian Maples, Krugerrands, fractional gold from Australia, China, and European Union Philharmonics. Stay away from British sovereigns, swiss gold francs and other older foreign gold. Only buy American gold eagles and US $20 raw gold when ever possible There are many advantages to owning US material that would take time to explain. There are many disadvantages to foreign gold. Also stay away from Goldline because they push the foreign gold on people who are uneducated in gold buying.

I buy gold from only 2 companies and will consider using a third. They are American Gold Exchange Patroit Trading Group and the third is APMEX Selling gold back is as simple as reversing the buying process. Just call the coin dealer and sell it back to who you bought it from or call some other dealer, broker or coin shop. The dealers work with bullion banks and will buy gold on the spot.

First off you need to understand that gold is not an investment. Gold is and acts more like an insurance policy. You are insuring that something in your portfolio can never go to $0.00. All paper assets have the ability to go to $0.00. This is what you are insuring against. Silver is also in the gold realm as well, so when talking about gold, silver is included.

Gold is money and a store of value. It is the “Currency of last resort” as Greenspan has stated many times through the years. Gold doesnt pay interest, dividends, doesnt restate earnings, has no lawyers, accountants, CEOs or CFOs lying to you on television. Gold doesnt ask for bailouts, doesnt go BK and cannot cook its books. Gold cant be debased or printed at the will of a company or governmetnt and holds its purchasing power.

Gold sits there as a store of value, is labor intensive, and a one ounce coin will not split into a bunch of half ounce coins at the direction of the pin stripped bandits on Wall Street. Also Gold is the ONLY asset class in the last ten years to increase in value and retain every dollar of its purchasing power.
The NASDAQ is up 1700% since it was created in 1971. Gold has outperformed all assets since we went off the gold standard in 1971. Gold would be even with the NASDAQ if it fell to $630 an ounce. Gold would be even with the DOW and the S&P 500 if it were to fall to $420 an ounce.

Gold has outperformed ALL asset classes since we went off the gold standard. No exceptions. However silver since 1928 has outperformed them all.

Investing in gold and silver for the short term is gambling. Dont do it. Putting cash into gold and silver for long term savings is the only way to go. History has shown that to be the best way to perserve wealth for 6000 years.

Alan Greenspan said before he became chairman of the Federal Reserve, “In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold (from 1933 to 1975). If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.” Alan Greenspan 1967

Paul asks…

What are the problems of full-reserve banking?

I have heard several arguments for this system since it is supposed to provide economic stability and eliminates many of the dangers of the banking system that we have today. But what are the issues with this system and are there advantages to keeping the fractional reserve system that we have today?

financi4 answers:

This is a rather nasty subject.

Those who object to fractional reserve banking do so primarily on the grounds that it allows the easy creation of money and so increases inflation. Many are people who believe that any price inflation is evil (not economically bad policy, but morally evil)

So, what would you have to give up in order to achieve the combination of full reserve banking and 0% inflation rate?

1. Economic growth.

If you have fiat money and full reserve banking and are willing to have an inflation rate greater than 0%, then this is not a valid objection. (The government can create the extra money you need for a small amount of inflation) But if you want to eliminate any inflation, if you want a gold-back currency, etc. Then it is the bigest cost.

2. Major government regulations. Without government regulation and close inspection, you can’t prevent the creation of money by lenders. (Historically, banking started with various institutions offering “promises to pay” to be used by travelers, etc. Without some way of checking that each and every “promise to pay” is backed by full reserve, you allow the creation of money – i.e. Factional reserve banking)

Again, not an issue if you don’t object to government regulations – though full reserve regulations would have to be much tighter than today’s financial regulation. Today there is a whole “shadow banking system” that is completely unregulated but still creates money by fractional reserve lending.

Some proponents of full-reserve seem to think the market will take care of this problem,
but that seems more than a little optimistic to me.

3. One of the primary (some would argue the single primary) functions of a bank is to convert short-term debt into long-term investments: the bank takes the money in checking accounts (which are short term because they can be withdrawn any time) and created mortgages (long term investments) with it.

Many argue that with full-reserve banking, this function of banks would be impossible.
If so, it would make the cost in economic growth still greater.

So, you pay these costs and what do you get in return?

The claim is that you get “greater stability”
But how?

1. Yes, it is true that private banks can no longer create money, but modern central banks already limit how much money the banks they regulate can create. Most of the instability problems have come from institutions and activities that aren’t regulated.

2. For stable prices, the supply of money has to match the supply of goods. So if private banks are not going to create money as needed, the central bank or the government will just have to do it on its own. And it is (they are?) perfectly capable of doing so.

So why do you trust the government to create the right amount of money but not control the amount of money the private banks create?

3. Of course, you can distrust the central banks and the governments to the point where you insist on currency backed by a commodity such as gold rather than have fiat money.

Now you no longer have price stability – a find of gold causes inflation
A long period with no new gold causes deflation and depression;
as does people choosing to hold more cash:

4. Then there is the question of bank runs. Full reserve banking is supposed to make them impossible. That may be true if the bank has a single building and all the money is right there. But what if the bank has several branches? Do you have to go to the branch where you opened your account? Are we going to give up electronic banking completely?

If the answer is that there will be central vault with reserves, then how is that different from the current system with the FDIC and Federal reserve guaranteeing deposits?

Mark asks…

A little help with Economics Application Questions?

1. What are some disadvantages to having a money system backed by a precious commodity, such as gold or silver?

2. What would happen if the market interest rate on loans were 12% and the government, feeling the rate too high, passed laws making it illegal for banks and other institutions to lend at a rate higher than 6%? How would it effect households, business firms and the government?

financi4 answers:

1. It puts a restraint on economic growth. For example, if the government wants to finance a greenhouse project that is expensive, the government can either use taxpayer’s money or deduct expenses from other public investments. But a money system that is not backed by precious commodities (known as the fiat system) can easily just print up a bunch of money and finance the greenhouse project without having to resort to either of the two options (which is a big hassle BTW).

However, being on the gold standard as its called, restricts growth as the government has to carefully make sure that any money spent is backed by the precious commodities.

2. Aggregate spending would increase at the new 6% high. Of course, since the 6% interest rate serves as the maximum now, aggregate spending can further be increased as in this case, the 6% is now considered to be relatively high. Therefore, if it is to be changed, the only other direction in which the interest rate can move is down – thus increasing overall spending in the economy even more.

Chris asks…

What is the best way to buy Gold, for example, how about eGold?

financi4 answers:

In my opinion there are two avenues open to you.

The index gold funds of which one is GLD. One share is the equivelent of 1/10 oz. Of gold. You buy it just like a stock. There is one disadvantage that you need to be aware of. There is an annual management fee on the fund.

The other avenue open to you that you may wish to consider is a gold mining stock. ABX is the most profitable. There are others. Buying shares in a less profitable company may prove a better investment if gold goes up another $100 an ounce because it will mean a more significan increase in earning for the less profitable company. Along those same lines there are mutual funds that invest in gold mining companies. You might wish to investigate those.

Those are the two investments that I believe other you the most potential.

Donald asks…

In what form is it best to own Gold?

As an investment, other then stocks? Bullion, coins, some other form?

financi4 answers:

Mostly depends how paranoid you are.

You may find this interesting reading:

You could buy gold coins at a local coin shop, or online.
Bars are harder to buy locally, but they can be purchased online.

Storing your gold at home has a big advantage and a big disadvantage: No matter what happens, you can lay your hands on it. However, you have to worry about someone breaking in and stealing it.

If you store your gold somewhere else, you may have to pay to store it, and you can only get it out when they are open for business.

Look at the Kitco “pool” accounts. They basically store your gold for free, but if you want the gold, you may have to pay fabrication fees, shipping, handling, and insurance.


Ken asks…

Is property a better investment than a mutual fund or gold?

financi4 answers:

It can be. It can also not be. It depends on the property. All three have advantages and disadvantages. It comes down to knowing everything you can know about an investment before you invest.

Michael asks…

Please explain the Advantages and Disadvantages of Common Stocks?

Please explain the Advantages and Disadvantages of Common Stocks


financi4 answers:

Advantage: Best investment vehicle over time. Outperforms gold, real estate. Average rate of return about 10% a year over the history of the stock market.

Disadvantage: Risk. You are putting your money into a company or companies that may make bad decisions or have bad earnings, causing the stock to go down.

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Your Questions About Advantages And Disadvantages Of Gold Investment

Steven asks…

What are the prerequisite to invest in Mutual Funds? How does the Mutual Funds work?

How does the investor get benifits in the mutual fund? What are best mutual funds to buy in the today’s market? Any link for this information?

Justin answers:

F A Q >>>>>>>>>>>>>>

Q. What is a mutual fund?
A mutual fund is a trust that invests money contributed by a number of people in securities such as stocks, bonds, money market instruments, or even in assets like real estate and gold. To do this the mutual fund launches schemes, with each scheme having a specific and defined investment goal.

An investor buys a share in the assets of a scheme in the form of units, which represent his interest in the scheme. In India a mutual fund is organised as a trust, and this trust in turn appoints an asset manager commonly called an Asset Management Company (AMC) -to carry out the investment activity on its behalf.

Q.What advantages do mutual funds offer?

* Professional Management – The money contributed by the investors is invested by professional fund managers in the relevant asset classes as per the investment objective. Professional fund management brings in greater skill and experience to investing.

* Lower Risk – Mutual Funds invest the money in a large number of securities, thereby spreading the funds invested over a large number of securities and at times even over different asset classes within the same scheme. Investment in a large number of securities, and different asset classes reduces the risk to which an ordinary person investing by himself might be exposed.

* Better portfolio for less money – Since the investor buys a share in the assets of the fund, he gets a proportionate right over a large number of securities, which he would be unable to possess if he were to invest himself. For instance Rs 5000 may not be enough to buy even one share of a top notch software company while the same Rs 5000 invested in an Information Technology Mutual Fund will get the investor a proportionate share in a large number of premium software scrips.

* Lower Transaction Cost – A mutual fund, by virtue of its status and the volume of the transactions it conducts is able to carry out buy and sell transactions more cost effectively.

Q.What is the disadvantage of a mutual fund?
An investor has little or no control over the investments made by his fund. Funds therefore, to quote a fund manager, cannot be managed by “popular democracy”. While this lack of control may be viewed as a disadvantage by one investor, another may see it as an advantage.

Q.What are the various types of mutual fund schemes?
An umpteen number of criteria can be used to classify mutual funds into various categories. We have listed below the most common criteria used to classify funds :

* Primary Aim / Asset Class
It classifies funds according to the asset class they invest in.

* Secondary Aim / Investment Sector
It segregates funds on the basis of the sub sector or the special focus area on which the fund’s investments are concentrated.

* Duration / Liquidity
This basis uses the maturity time i.e whether the funds have any specific maturity date or not as the determinant for classifying the funds.

* Trading Strategy
This classifies funds on the basis of frequency with which the portfolio is churned.

* Investment Strategy
It uses investment philosophy followed by the fund as the criterion for categorising the funds.

* Basis of Security Selection
It classifies funds according to the criteria used by the fund to select securities for its portfolio.

* Objective of Investment
Here the funds are classified on the basis of the investment objective where objective reflects the purpose for which the investor is investing his money.

* Costs/Loads charged
Here the funds are classified on the basis of whether or not there is any load attached on the purchase or sale of the units.

* Place of origin
Here the funds use the criterion of the place of incorporation of the fund as the determining criterion for categorisation.

Q. What are the factors that need to be considered while selecting a fund?

* Investment needs
It is necessary to decide the purpose for which the investment is being made. This is because the investment avenue can vary depending upon the needs of the potential investor. For instance if one is investing for some event like retirement or for marriage of children and there is plenty of time to go, then it is better to invest in equity-dominated funds. On the other hand if the idea is to invest the lump sum received on retirement for regular income then a fixed income dominated fund is suitable.

* Risk profile
It is essential to invest in accordance with one’s risk bearing capability. Equity funds therefore are not suitable for those with little risk appetite as volatile equity markets can impact fund returns.

* Time frame of Investment
Generally, equity funds are considered to be performers over a relatively long period of time. In the short term they are prone to fluctuations of the market. So, at the time of the withdrawal of investment an equity fund may not have given any returns. In such a case an equity fund is not the solution. An income fund or a money market scheme is ideal in the situation.

* Consider liquidity
This is linked to the above point. If the time frame of investment is short then it is not really advisable to invest in close-ended schemes. Units of these schemes are generally listed on stock exchanges, and past experience has shown that they quote at a heavy discount to their value. On the other hand if one is willing to invest for a certain defined period a close-ended scheme may do the job. Further, liquidity of the scheme in terms of its ability to liquidate its portfolio should also be looked into.

* Service Levels / Expenses
With the top funds offering similar returns service level has become the differentiating factor. It is important to choose a fund that offers efficient service in terms of prompt delivery of account statement and quick redressal of the investor grievances. An investor also needs to consider the expense ratios of the funds he proposes to invest in.

* Transparency
It is another crucial factor. It is better to choose a fund that is open about its investments, its investment style, and in its communication with its investors.

Q. What is the cost associated with mutual fund investing?
In addition to loads a mutual fund also charges asset management fees, and certain other expenses. These charges imposed by mutual funds are meant to compensate the fund for the expenses it incurs in managing assets, processing transactions and paying brokerages. For instance every redemption request involves not only administrative processing costs but also other costs associated with raising money to pay off the outgoing investor.

Mutual Funds cannot, however, be arbitrary in the imposition of these charges. For instance, regulations stipulate that the difference between the repurchase and the resale price cannot exceed 7 per cent of sale price, and that recurring expenses cannot exceed 2.5 per cent of average weekly net assets.


* Entry Load/Sale Load
It is the charge imposed on the investor at the time his entry into the fund. Thus, the investor has to pay for the value of the units plus an additional charge. This additional charge is called the entry/sale load.
* Exit Load/Repurchase Load
It is the charge imposed on the investor at the time of his exit from the scheme. Operationally, therefore, the mutual fund will pay back to the investor the value of the units reduced by the charge levied on exit.
* Contingent Deferred Sales Charge
A mutual fund may not want to charge an exit load in all the cases. In such a case the mutual fund may impose charges based on the time of withdrawal. Thus, a fund desirous of long-term investors may stipulate that the exit charge will keep reducing with duration of investment. Such a charge is called Contingent Deferred Sales Charge. The asset management company is entitled to levy a contingent deferred sales charge for redemption during the first four years after purchase, not exceeding 4% of the redemption proceeds in the first year, 3% in the second year, 2% in the third year and 1% in the fourth year. In order to charge a CDSC the scheme has to be a no load scheme as per the regulation laid down by SEBI. The idea behind charging CDSC is the recovery of expenses incurred on promotion or distribution of the scheme
* Switchover/Exchange Fee
It is the fees charged by a fund when the investor decides to switch his investment from one scheme of the fund to another scheme from the same fund family.

* Recurring Expenses:
Apart from loads, mutual funds also charge some other expenses. Even here regulations stipulate the ceiling on each head. Some of the fees charged by the fund are:
o Investment Management & Advisory Fees – As the name explains this is meant to remunerate the asset management company for managing the investor’s money.
O Trustee Fees – is the fees payable to the trustees for managing the trust.
O Custodian Fees – is the fees paid by the fund to its custodians, the organisation which handles the possession of the securities invested in by the fund.
O Registrar and Transfer Agents Charges – is the fees payable to the registrar and the transfer agents for handling the formalities related to the transfer of units and other related operations.
O Broker/Dealer Remuneration, Audit Fees, Cost of Funds Transfer, Cost of providing a/c statements, Cost of Statutory Advertisements.

Q. How is the worth of an investment in a mutual fund measured? What is NAV?
The current value of your investment can be known from the Net Asset Value or the NAV. The NAV, in effect, measures the value of the net assets (gross assets less liabilities) per unit. Mathematically, the NAV is given by:

{(Market Value of the Scheme’s Investments)+Other Assets (including accrued interest)+ Un amortised Issue Expenses (only in case of schemes launched on a load basis) – All Liabilities except unit capital and reserves)}Divided by the number of units outstanding at the end of the day.
All assets and liabilities are valued at the current prices.

Q. Do mutual funds guarantee safety of capital and returns?
No, mutual funds normally do not guarantee any returns. One thing that is important to remember is that neither the returns nor the capital are guaranteed in most mutual fund schemes. While full term assured schemes-both equity and debt-have been launched in the past, they are now being phased out with the maximum period of assurance having been limited to one year.

SEBI, the regulator, has now provided that no mutual fund scheme can assure a return beyond a period of one year. Therefore, unlike a fixed deposit in a bank very few mutual funds can give investors assured returns.

Though mutual funds may not offer assured returns it is also important to note that with the diversification of investments in a mutual fund, the risk of capital depreciation or erosion of capital is lower. This applies more so in the case of income funds. In equity funds there can be absolutely no assurance of returns considering the very volatile and unpredictable nature of the equity markets.

Q. What are the various ways in which fund performance can be measured?
There are various ways of measuring performance. The NAV serves as a basic material for evaluating the performance of a fund. Some of the methods that are used are:

* Relative to benchmark method
Under this method a comparison is made between the returns given by a market index, and the fund over a given period of time. If the returns generated by the fund as measured by changes in NAV over that given period of time are greater than those generated by the benchmark then the fund is deemed to have outperformed the market portfolio.

* Risk-Return Method
The Relative-to-Benchmark measure is very simplistic, as it does not incorporate any measure of risk in its calculation. An investor would naturally be interested in finding out the return generated for the risk undertaken, as, in a bid to generate super normal return, the fund may go overboard on the risk parameter. Therefore, risk adjusted measures of return are needed to measure the performance of funds. There are several such measures prominent among which are the Sharpe ratio, the Treynor ratio, and Alpha:
o Sharpe ratio
This measure uses standard deviation as a measure to evaluate a fund’s risk-adjusted returns. The higher a fund’s Sharpe ratio, the better it is i.e a fund’s returns would be regarded good if the fund returns a high level of Sharpe ratio. Mathematically, it is arrived at by deducting the risk free returns from the returns generated by the fund and dividing the residual figure by the standard deviation of the fund’s returns. One thing that has to be kept in mind while using this measure is that the ratio is not an absolute figure. Its real utility lies in inter scheme comparison.
O Treynor’s ratio
The other measure Treynor’s ratio also has the same attributes with the difference that the residual figure in this case is divided by beta rather than the standard deviation, thus reflecting only the systematic risk. Beta of the fund is a volatility measure that quantifies sensitivity of the fund’s return to the benchmark index’s returns i.e. Given the movements of the benchmark how much the fund will move. It does not give representation to unsystematic risk under the assumption that the fund manager can easily wipe out the unsystematic risk by diversifying across a large number of stocks.
O Alpha
Basically, alpha is the difference between the return that would be warranted by its beta (expected return) and the return that is actually generated by the fund. If a fund returns more than what is anticipated by beta, it has a positive and favourable alpha, and if it returns less than the amount predicted by beta, the fund has a negative alpha. Mathematically, Alpha= fund return – [Risk free rate + Beta of fund (Benchmark return – Risk free return)]

Q. How relevant is past performance of a fund scheme?
There is no clear answer to this. Fund prospectuses will clearly tell you that “past performance is no indicator of the future”, but, on the other hand many analysts will tell you that sustained performance over a reasonably long period of time is a good criteria.

There is truth in both. While past performance reflects the success of the fund manager, the broad investment strategy and related factors, it serves as no guarantee that the strategy will work in the future too. A change in the external environment could necessitate a change in investment strategy too. Again, past successes could imply that the probability of future successes is respectably high.

Q. Do fund managers commit to any particular investment philosophy and style?
Normally fund managers do define the approach they intend to adopt to realise the investment objective of the scheme. Fund offer documents and other communication often include a comment from the fund manager about the investment philosophy and the style that is proposed to be followed with regard to the scheme.

Q. What risks is one exposed to while investing in mutual funds?

* Market risk
If the overall stock or bond markets fall on account of macro economic factors, the value of stock or bond holdings in the fund’s portfolio can drop thereby impacting the NAV.

* Non-market risk
Bad news about an individual company can pull down its stock price, which can affect, negatively, funds holding a large quantity of that stock. This risk can be reduced by having a diversified portfolio that consists of a wide variety of stocks drawn from different industries.

* Interest rate risk
Bond prices and interest rates move in opposite directions. When interest rates rise, bond prices fall and this decline in underlying securities affects the NAV negatively. The extent of the negative impact is dependant on factors such as maturity profile, liquidity etc.

* Credit risk
Bonds are debt obligations. So when the funds invest in corporate bonds, they run the risk of the corporates defaulting on their interest payment and the principal payment obligations and when that risk crystallises it leads to a fall in the value of the bond causing the NAV of the fund to take a beating.

* Inflation risk

Q.What is Rupee Cost averaging?
Rupee cost averaging is an investment strategy wherein equal amounts of money are invested in a scheme at regular intervals. This enables an investor to buy higher number of units when the NAV is high and less number of units when the NAV is ruling at a low figure.

It eliminates the need to keep a continuous track of the market. Regular investment over a period of time evens out the short term fluctuations associated with the market’s volatility.

Q.What is an offer document?

* Offer document is a document meant for the purpose of disseminating extensive information about the scheme and the fund to prospective unit holders so that they are well apprised of the risk before they commit their funds. It has to be designed in accordance with the guidelines stipulated by SEBI.

* A prospectus must disclose certain types of information, including details about:
o investment objectives
o risk factors and special considerations
o summary of expenses
o constitution of the fund
o guidelines on how to invest
o organization and capital structure
o tax provisions related to transactions
o financial information

Q.How does one read the offer document?
While the offer document contains detailed information about the mutual fund as a whole and about the particular scheme, a reader is likely to be confused as the document uses a lot of legal language in explaining the various points it is supposed to address.

Further, not all sections require careful reading. But, some sections do require more than a cursory glance. Sections addressing issues like investment objectives, investment philosophy, expenses, fund management background, sale and repurchase procedures, etc need to be read carefully. Potential risks, financial highlights, and past record also need attention.

Q.What are the tax benefits one can avail of by investing in mutual funds?
The dividend distributed by mutual funds has been made tax exempt in the hands of investors from the financial year 1999 although some categories of funds now pay distribution tax at the rate of 10 per cent on the dividend distributed to the unitholders.

The investment in mutual funds designated as Equity Linked Saving Scheme(ELSS) qualifies for rebate under section 88. The maximum amount that can be invested in these schemes is Rs.10,000, therefore the maximum tax benefit available works out to Rs 2000. Apart from ELSS schemes, the benefit of Section 88 is also available in select schemes of some funds such as UTI ULIP, KP Pension Plan etc

Some schemes also offered the benefit of section 54EA and 54EB to the investors. This benefit now stands withdrawn and only those investors who have sold off their properties prior to 31st March, 2000 are eligible to take advantage of the provision..

Q. Aren’t the recent tax provision of distribution tax biased against the small investors?
Yes, in a sense they are. This is because the small investor is no longer in a position to avail the benefit of section 80-L wherein a deduction could be claimed on dividends received from mutual funds. Now, while the dividend has been made tax free in the hands of the investors, it is the mutual funds -other than open ended equity funds- who now have to pay the distribution tax of 10 (plus surcharge) per cent.

Therefore, the small investors who were earlier in a position to exhaust the 80-L limit and thereby dilute the tax liability will now not be able to get the tax benefit. So now this investor gets dividends net of tax as compared to gross dividend which he used to get earlier, as the distribution tax would already have been paid by the mutual fund.

Q.Mutual fund advertisements make exaggerated claims. What points should one check to avoid being taken in by aggressive advertising and ever obliging salesmen?

* Most Mutual Funds do not carry any guarantee. Moreover, they are not insured by any bank or government agency. Even funds carrying a Bank’s name do not offer guaranteed returns. Therefore, if an advertisement seems to promise attractive returns, it is wise to check out the basis on which such claims are being made.

* Mutual funds always carry one or the other investment risk depending on the asset allocation of the scheme. Some types carry more risk than others. While the offer document details the risk factors associated with the scheme, background research and inquisitive questioning is required to uncover all potential risks.

* Past performance is not a reliable indicator of future performance and there is no guarantee that the fund manager will be in a position to repeat the past performance on a consistent basis. It is necessary not to be overawed by the claims of spectacular past performance.

* All mutual funds carry costs and loads that go on to reduce effective returns. An investor needs to confirm all cost inputs before committing his money.

Q.Where can information about mutual funds be found?
There are various newspapers, magazines, journals and web sites that carry all relevant information on mutual funds. Sites such as this, and business newspapers such as The Economic Times carry details and provide extensive coverage of mutual funds. Mutual Funds and their agents are one of the most vital sources of detailed information.

Q.Is there any minimum investment amount being stipulated by the scheme?
Yes, there is a minimum initial and subsequent level of investment stipulated by each mutual fund scheme. These amounts vary from fund to fund.

Q.What is the ‘switching facility’ offered by various funds?
Many mutual funds offer the investors the benefit of mobility within the fund family i.e. Unitholders can move over from one scheme to another with or without the payment of entry/exit charges. Such a facility enables investors to quickly move their investments as and when market conditions change.

Q.What needs to be done to buy units?
There are various modes available depending on the kind of scheme. Normally, the mutual fund industry falls back largely upon the agent network to attract investors. Apart from this many large mutual funds have their own offices in all major cities. Application forms can also be downloaded from the web sites of various funds. Also, in close-ended schemes units of an existing scheme are available through the stock exchange.

Q.How does the order get executed?
Most funds price their units on a prospective basis, i.e. An investor gets to buy units at a price to be determined in the future. For this purpose each fund fixes a cut off time. Applications for purchase or redemption submitted before the designated time are processed at a price linked to the NAV of that day-which is announced at the end of that day- while applications submitted after the cut of time are processed at a price linked to the NAV of the following day. This cut off time determined varies from fund.

The number of units to be allotted-in case of purchase requests- is determined by dividing the amount invested by the applicable NAV based sale price. Normally, within a week of the purchase transaction the investor is mailed an account statement confirming the NAV at which the investment has been made. Along with this, the statement contains full details of the investor’s address, the broker’s name, and other information furnished by the investor at the time of applying for the units.

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Your Questions About Gold Silver Foreign Coins

William asks…

Dept of Homeland Security may open safety deposit boxes in search of gold, silver and weapons?

Is this American?

According to in-house memos now circulating, the DHS has issued orders to banks across America which announce to them that “under the Patriot Act” the DHS has the absolute right to seize, without any warrant whatsoever, any and all customer bank accounts, to make “periodic and unannounced” visits to any bank to open and inspect the contents of “selected safe deposit boxes.”

Further, the DHS “shall, at the discretion of the agent supervising the search, remove, photograph or seize as evidence” any of the following items “bar gold, gold coins, firearms of any kind unless manufactured prior to 1878, documents such as passports or foreign bank account records, pornography or any material that, in the opinion of the agent, shall be deemed of to be of a contraband nature.”
Being funded by Soros , is not a reliable source.

financi4 answers:

This chit needs to be halted immediately.

Mark asks…

Why are pennies unacceptable forms of payment when settling a DEBT?

The US Coinage act of 1965 says:
“United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all DEBTS, public charges, taxes and dues. Foreign gold or silver coins are not legal tender for debts.”

Confusion about paying with coins often arises from the difference between paying for something, and settling a DEBT.

If I owe you $20 and try to pay you with $20 in pennies, you have to accept it, because the coinage act says that coins are ‘legal tender for all DEBTS….’.

If I walk into your store though and offer to buy something with $20 in pennies, you don’t have to accept it – I have no debt to you, I’m merely offering to enter into a contract. You can require any payment terms you want – credit card only, no coins, even “We only accept payment in bills.”

people please if i want to pay my ticket fines with 20,000 pennies the court house has not right to refuse my payment because im not entering into a contract with them but instead settling a DEBT, and there are no laws that state that loose coins have to be rolled up either.

please note the differences between settling a DEBT and entering a contract (such as buying gum from the store)

and you all know what happens when you dont pay your debts, they add additional charges, and its BS if they refuse to take your payment so they can instead bag additional money from you

yes its me again, i even pay tolls with pennies
Im not being cute or a jerk by paying with pennies,, its the law period.

im pretty sure they have the time to count the money,,,,,, “not my problem like most officials” say

I was paying my fines with 20,000 pennies !!!!! ($200)

financi4 answers:

Well if you put the pennies in rolls I’m sure they won’t have a problem accepting it. It’s probably the counting factor that makes people not want to accept it.

Michael asks…

Since when are pennies not legal tender??? Do I have a Case?

The US Coinage act of 1965 says:
“United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes and dues. Foreign gold or silver coins are not legal tender for debts.”

The key word is DEBT, and if you get a parking ticket that means you are in debt with the county or state. Which means that if you owe them $200 you can pay them with $200 worth of pennies (20,000 pennies) and they can not refuse your payment because the coinage act says that coins are ‘legal tender for all DEBTS….’.

A few weeks ago i got bogus ticket worth $200, and like such i decided to pay them with 20,000 pennies. They refused to take my pennies and on top of that i was unlawfully detained for 4 hours for failure to follow orders ( the order was: pay in bills, debit, check,,, no pennies). and since i insisted on paying them with pennies they decided to detain me. Furthermore I had only one day left to pay my fine, but it didnt happen as they refused to take my payment, and now one of the officers told that he was going to issue a bench warrant against me for my unpaid fine (WTF!!!). Furthermore the 20,000 pennies that i had have magically been reduced to 16,000 pennies which is $160 (WTF), however i do have a receipt from the bank were it clearly states that I changed $200 for 20,000 pennies.

Not only did they refuse to take my payment, the unlawfully detained me, they stole $40 (4,000 pennies) from me, and now i might have a bench warrant (doubt it), and most likely than not they will apply an extra charge for late payment on top of my $200 ticket.

What can I do,, Sue them??? Contact the fed’s ???
The ticket was given to me for standing on the road during a traffic stop( i wasnt even driving)

The have to take my money if im DEBT, regarless of the payment type. its the law.

If you get a ticket you pay it plain and simple, and if they want to take my payment they are the ones at fault period!!!
The ticket was given to me for standing on the road during a traffic stop( i wasnt even driving)

The have to take my money if im DEBT, regarless of the payment type. its the law.

If you get a ticket you pay it plain and simple, and if they dont want to take my payment they are the ones at fault period!!!

financi4 answers:

You are wrong/

Q) I thought that United States currency was legal tender for all debts. Some businesses or governmental agencies say that they will only accept checks, money orders or credit cards as payment, and others will only accept currency notes in denominations of $20 or smaller. Isn’t this illegal?

A)The pertinent portion of law that applies to your question is the Coinage Act of 1965, specifically Section 31 U.S.C. 5103, entitled “Legal tender,” which states: “United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues.”

This statute means that all United States money as identified above are a valid and legal offer of payment for debts when tendered to a creditor. There is, however, no Federal statute mandating that a private business, a person or an organization must accept currency or coins as for payment for goods and/or services. Private businesses are free to develop their own policies on whether or not to accept cash unless there is a State law which says otherwise. For example, a bus line may prohibit payment of fares in pennies or dollar bills. In addition, movie theaters, convenience stores and gas stations may refuse to accept large denomination currency (usually notes above $20) as a matter of policy.

Directly from the US Treasury site.


As for the rest of your accusations, it’s up to you to prove them.

Next time you want to ‘make a point’, make sure you are right and keep from looking like an uneducated moron.

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Investing in gas over renewables is a false economy – UK pressure group

Investing in gas over renewables is a false economy – UK pressure group

Friends of the Earth has backed a report by independent statutory body the Committee on Climate Change (CCC) which predicts that investing in renewables development will be cheaper in the long run for UK households than betting on more plentiful gas,
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pv magazine
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Saletan: The shameful attack on Mitt Romney's investing

Saletan: The shameful attack on Mitt Romney's investing

He said of Romney and Paul Ryan: "Instead of investing in America, they hide their money in Swiss bank accounts and ship our jobs to China. Swiss bank accounts never built an American bridge. Swiss bank accounts never put cops on the streets or
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