Gold ETF, bluechip stocks have potential to multiply in value unlike physical gifts

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The festive season is here. And you are looking to pamper your family and close friends with gifts as usual. The next few weeks would go in a flash — starting with the leisurely window shopping and ending with the last-minute hurry to buy at least something worthwhile for the loved ones.

Typically, you tend to look at expensive jewellery, branded apparels, latest gadgets, best of toys and so on. How about being a little different this time — some out-of-the-box 'financial gift' ideas that will also ensure financial security to your family?

If you need a valid reason to switch to these novel gifts, all you have to do is scan newspapers: Greece, Italy, US, Japan… SBI downgrading… Yes, there is a lot of bad news all around. And there is nothing better than being financially better prepared to meet these bothersome issues.

"In theory, I agree that financial gifts are superior to physical gifts, but we must remember that gifting also has an emotional element. Physical gifts may make the receiver's eyes light up, something financial gifts can never do," says Jayant Pai, vice-president, Parag Parikh Financial Advisory Services.

"The easy way out would be to give physical gifts. However, if the giver or receiver does not mind educating or getting educated on the virtues of 'paper' gifts, you may go ahead (with financial gifts)."

FOR THE WIFE:

You know for sure that gold is your wife's best friend. You also know that she always buys the yellow metal on the auspicious day of Dhanteras just two days before Diwali. Try talking to her and find out whether she would be okay with paper gold this year.

Sure, you can always buy a small token of the yellow metal for auspicious reason. But talk to her about gold ETF and gold fund (fund of funds). These are mutual fund schemes that would allow you to invest in gold without actually owning gold physically.

"Any day, it is easier to store gold electronically. You don't have to worry about purity and it is convenient to liquidate the holding at any point of time. The biggest advantage, however, is transparent pricing, which investors can track from time to time," says Vishal Kapoor, head of wealth management at Standard Chartered Bank.

If your wife has her own trading account with a broker, you may gift her a sum of money by depositing the amount in her bank account, which can be used to purchase gold ETFs. "This will spare her the extra fund management charge (usually 0.75%) that a gold FoF entails.

Also, there is no wealth tax on such ETFs/funds. You could also open a gold accumulation scheme account in her name and make periodic infusion into it," says Pai of Parag Parikh Financial Advisory Services.

CAUTION:

It is incredibly tough to convince most women to go for ETF or gold fund instead of gold jewellery. Try the middle path: first buy a gold coin or bar on the auspicious occasion and then try convincing her to invest in gold ETF or FoF.

FOR THE HUSBAND:

Is he still talking about replacing the 'old' LCD with a bigger LED? Well, try talking him out of it. Use the headlines from the front page to scare him about spending so much money when the economic (that also includes your bonus and increments) outlook remains bleak.

Why not invest in some bluechip stocks or a large-cap equity mutual fund instead? Tell him you can buy good quality stocks really cheap these days. Also, tell him that after five years, the LED may be worth almost nothing.

Remember the price you got for your old TV? On the contrary, blue-chip stocks or large-cap mutual funds may reward your handsomely. In fact, you may even be able to fund your LED purchase from the profits you earn.

"Any day, equity investments offer returns in the form of dividend with potential capital appreciation over the long term. They don't depreciate in value and become obsolete quite rapidly," says Kapoor of Standard Chartered Bank.

CAUTION:

It is not easy to reason with gadget freaks. Be tactful and prepare well for your speech.

FOR PARENTS:

You were thinking of a red Kanjivaram sari for your mother this Diwali? Hold on for a second. When was the last time you have seen her wearing these saris with elaborate works? Can't remember? Do you at least remember how many times she has told you that she is safekeeping them to pass it on to you? Well, take a hint and try getting her a health insurance cover or a bank fixed deposit (FD) for five or 10 years.

"A long-tenure bank FD (10years) of over 10% is available today and one could lock in on this rate. This is one good option available today for a senior citizen," says Suresh Sadagopan, certified financial planner, Ladder7 Financial Advisories.

You can also consider buying a health cover for your parents. It would be a slightly expensive affair, but really worth the trouble. It can always act as a base cover, which can part-fund their hospitalisation-related expenses. If the age limit is a barrier, just build a cash pool as a contingency fund (you can ask your siblings to join), which can come in handy at times of any medical emergency.

CAUTION:

Remember to give at least some small gifts to them as their generation actually values physical gifts more.

FOR THE CHILD:

A foreign degree or an MBA from a good university may sound absurd to your kid today. But it would actually be his/her ambition a few years later. Start a PPF account in his/her name, where you can park a fixed amount regularly. You can also build a corpus where you don't have targets.

It will just be an additional buffer for your child if he/she wants to take up something that may require financial assistance in the initial years. Sure, your kid can always take a loan if he/she plans to pursue an MBA from a premier institute in India or abroad.

Still, an additional kitty can soften the repayment burden. But children would get surely disappointed if you are going to hand them the PPF receipt or even discuss investments with them. Hence, you can opt for the gaming route to teach them money lessons.

You can buy them a game of Monopoly, which is all about collection and payment of rents as well as buying and selling property. If your child is net savvy you can even play this game online. Another game is 'The Game of Life', which is available both on board as well as online.

The main objective of the game is to opt for a lucrative career by getting the highest salary and sign off with a high net worth. Then it covers other important milestones like marriage, home buying investments and even insurance.

You are declared a winner if you retire as a millionaire without any pending debts. This can actually teach them some valuable financial lessons without involving any effort.

Source: Economic Times

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