Gold investment opportunities abound for India's rich
Asset managers and investment bankers, looking to target high net worth individuals in India are increasingly offering new and varied ways to invest in bullion
Posted: Tuesday , 26 Apr 2011
Gold's strong rise has seen a mushrooming of investment opportunities being offered by India's metal dealers and high net worth individuals are taking full advantage of the new services.
In an effort to grow their presence within high net worth circles, investment bankers have been providing varied wares to this class, even offering bullion at a discount that then enables investors to on-lend the gold to jewellers.
At the last count and as of April 2011, there are at least 115 Indian billionaires worth a combined $195 billion and more than 275 individuals worth more than $500 million.
And it is this segment that is now veering towards buying gold in huge numbers. Lending the gold to jewellers is just one of the many bullion-related options on offer. Many other unique offerings have already caught the fancy of the rich and the famous in Mumbai.
``Both gold and silver have reached new records. We have a scheme that promises the investor dual income from the likely price appreciation of the yellow metal. An investor can earn interest, a kind of lending income as well,'' said Ketan Kothari, director at RiddiSiddhi Bullions.
RiddiSiddhi is one of the largest gold importers and provider of bullion delivery for various spot and futures exchanges. The firm has launched an investment product called `Bullion Plus Plus,' that promises double income generation.
``Our product is very similar to buying a real estate property and letting it out on rent. It has the added advantage of transparency, liquidity and lower transaction costs,'' Kothari added.
RiddhiSiddhi Bullions decided to offer HNIs gold and silver bars at wholesale rates, resulting in an almost 1% to 3% discount to the prevailing price, depending on the bulk purchase. Investors have an option of lending the same to the London Bullion Market Association (LBMA)-accredited bars and earn a good interest while at it.
``Following the launch, we have come across so many investors who want to invest anything between $22,429 and $112,140 in fixed assets such as real estate and bullion. But given the high price of real estate, especially in Mumbai, and the lack of liquidity, many are opting for gold and silver bars,'' said Kothari.
More on offer
Another investment scheme targets high networth investors, portfolio management companies and wealth managers, who wish to buy a minimum of one kilo gold and 30 kilo of silver.
Fund houses and banks in India are targetting HNIs by offering them gold and silver at special rates, in a markdown to the current price.
``Debt concerns in the Eurozone and in the United States, surging oil prices in the Middle East and Africa, have resulted in a peak in bullion,'' said Hoshang Vazifdar, bullion specialist at Bank of Baroda, which has launched the new scheme.
``Though there are structured bullion products available for HNIs, by offering them the wholesale rates on gold, investors benefit even from a small price rise. Small investors are also educated that when there is a recession, gold is a great product to invest,'' he said.
Sekhar Somwani, vice president at equity firm Milestone Capital said gold is turning out to be a huge alternative investment asset as it has caught the public's fancy.
``Bullion as an asset class does not move together with traditional equity and fixed income markets. As a result, they have a low correlation with standard asset classes. Bullion helps many to diversify their portfolio by reducing the overall volatility of the portfolio when traditional asset classes such as stocks and bonds are performing poorly,'' he said.
Milestone Capital has a scheme where an investor can buy gold or silver through an online platform at wholesale market price. The quantum of bullion bought is then transferred to a vault.
The firm then acts on behalf of the investor and lends the bullion against adequate security to local jewellers. The bullion borrower pays a certain fee which is then passed on to the end-investor.
Given the market dynamics, an investor can earn an income of 3% to 7%. Investors' risks are limited to the extent of any price depreciation in gold or silver.
While RiddhiSiddhi Bullions access HNIs through tie-ups with stock brokers, wealth managers and chartered accountants who manage their wealth, they are also roping in bank managers and equity fund houses who have been advising their select clientile (comprising of ultra high net worth individuals) to include gold and silver in their portfolios as a hedge against stocks and real estate.
These ultra HNIs have a collective net worth of at least $945 billion, with most managers urging them to stay invested in bullion.