Goal Based Financial Planning – Building a Gold Fund
Recently I saw a television advertisement of PCJ (PC Jeweller), a well known gold retailer. The advertisement shows a nuclear family and the little daughter enjoying the wedding photographs of her parents. The mother happily points at one of her wedding picture and tells the daughter that when she grows up she will also get married to a handsome princess. The daughter is thrilled looking at the mother’s jewellery in the wedding photograph and asks an innocent question “Will I also get this much gold jewellery in my wedding?” That innocent question is good enough to get the girl’s father worried on how will he manage to accumulate so much gold for the daughter’s wedding considering the rate at which gold prices are rising in today’s uncertain scenario.
Every parent wishes that their daughter’s wedding should not be less than any other ‘Big Fat Indian Wedding’ and it should be one of the most talked about events in town. Gold prices have seen a frenetic rise from the beginning of the last decade (2000) from near about Rs. 4000 per 10 grams to current prices of a whopping Rs 28,000 per 10 grams (March 2012). This frenetic rise can turn any parent’s dream of a ‘Big Fat Indian Wedding’ sour if they is not well prepared. Do you also as a parent find yourself in a similar worrisome situation? Then please don’t worry. You are at the right place. We will help you prepare yourself financially and ensure your dream of a ‘Big Fat Indian Wedding’ becomes a reality. In this article we will explore how parents should go about accumulating gold for their daughter’s wedding.
Steps to be followed
To understand the process of building a gold fund let us take an example. Karan’s daughter Laxmi is 2 years old. For Laxmi’s wedding, Karan wants to build a gold fund that will take care of the gold requirement for the marriage.
Steps for accumulating Gold for Daughter’s Marriage
Let us look at how should Karan go about accumulating gold for Laxmi’s wedding right since the time Laxmi is small, rather than waiting till the time she reaches marriage age. One very simple way of accumulating gold for Karan is to buy gold in small quantities every month. Let us see how Karan can go about doing this.
Step 1: Decide how much gold is required?
Karan needs to decide how much gold he needs to accumulate for Laxmi’s wedding. Let us assume that Karan wants to accumulate 25 tolas (250 grams) of gold for Laxmi’s wedding.
Step 2: When is the gold required?
Karan needs to decide at what age he will start planning Laxmi’s marriage. Let us assume that Karan plans Laxmi’s marriage at or after the age of 25 years.
Step 3: How much gold needs to be bought every month?
Karan needs to calculate how much gold he will need to buy every month keeping in mind the above 2 steps. The simple formula for arriving at that is as follows:
Total grams of gold to be accumulated / No of months in hand to accumulate the gold
Laxmi’s current age is 2 years and the marriage age is 25 years. So Karan has 23 years or 276 months (23 years * 12 months per year) to accumulate the required gold (250 grams) for Laxmi’s marriage. To accumulate 250 grams of gold in 276 months, Karan will have to buy 250 grams / 276 months = 0.90 grams of gold every month. If we convert these 0.90 grams into a round figure, it means Karan will have to buy 1 gram of gold every month.
If Karan buys 1 gram of gold every month then he will reach his target of 250 grams of gold in 250 months (Approx 21 years). So infact Karan will reach his gold target 2 years ahead of scheduled time (21 years instead of 23 years).
Step 4: Implementation of the plan
Now that Karan knows how much gold he needs to buy every month, he needs to identify in what form he can buy the required amount of monthly gold. Karan can buy gold in physical form (coins) or electronic form (Gold ETFs or Gold Funds). Buying gold through Gold ETFs or Gold Funds has some advantages like no storage cost, no risk of theft, no insurance required etc. Before the wedding the electronic gold can be sold and physical gold can be bought from the jeweller of choice.
Companies offering Gold ETFs and Gold Funds
|Gold Bees (Gold Benchmark Exchange Traded Scheme)||HDFC Gold Fund|
|Kotak Gold ETF||Kotak Gold Fund|
|UTI Gold ETF||Reliance Gold Savings Fund|
|SBI Gold Exchange Traded Scheme||SBI Gold Fund|
Above we have mentioned some of the companies offering Gold ETFs and Gold Funds. There are many more companies in the market that are offering these products.
We saw how just by buying 1 gram of gold every month, a person can accumulate 25 tolas of gold or 250 grams of gold in 21 years. Right from the time the daughter is young, buying 1 gram of gold every month is manageable for a parent. But if this 250 grams quantity of gold has to be bought at one go at today’s prices of Rs 28,000 per 10 grams, it would cost Rs 28,000 * 25 tolas = Rs 7,00,000 (Rs 7 lakhs). This amount can burn a huge financial hole in any parent’s pocket. During a daughter’s wedding apart from other expenses, a lumpsum expenditure of a whopping Rs 7 lakhs only for gold can give sleepless nights to a parent if they are not well prepared financially.
As a parent to save yourself from the above worrisome situation just follow the above simple steps and calculate how much gold you need to buy every month
(Formula: Grams of gold to be accumulated / Number of months in hand to accumulate the gold)
Once you know the amount of gold to be bought every month, start buying your gold from today onwards. This will make sure you reach your target well in time and have a sound and peaceful sleep at night. Having the gold ready in hand before the wedding will ensure you realise the dream of your daughter’s ‘Big Fat Indian Wedding’ and it will be one of the most talked about events in town as we promised you in the beginning of the article. So we hope we have kept our promise of you realising your dream of daughter’s ‘Big Fat Indian Wedding’………. Have we???? Please comment ………
Note: In the above article the concept of how to accumulate gold has been explained using the example of a daughter’s marriage. This example has been used in this article as it is one of the most sought after reasons for people to accumulate gold. But the above method of accumulating gold can be applied for any reason / purpose for which gold is required. All you need to know is the amount of gold required and the time horizon, accordingly have a plan in place and get going with the implementation till you realise the goal. So Happy Gold Investing!!!
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