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Earn while you bide the time
March, 29th 2008

Put gold to more productive use.

It is a pity that the Gold Deposit Scheme, 1999 has not caught the fancy of the nation except that two religious shrines Tirumala Tirupati Devasthanam (TTD) and Mata Vaishno Devi Trust have lapped up the opportunity with alacrity. The scheme enables one to earn interest on investment in the yellow metal if only one agrees to a stern condition the bullion and jewellery would be sent to smelters for ascertaining its quality and quantity which is a strict no-n o with our sentimental populace.

In addition, the fear of such deposits triggering off an income-tax raid has also been a dampener. The religious trusts of course have no such sentiments or fear. Their income in any case is exempt from tax. Be that as it may, the scheme needs to be sugar-coated if only to make a productive use of an asset which otherwise is innately idle.

Hoarding gold

India on a rough reckoning buys 800 tonnes of gold and is the largest user of gold. On this reasoning, it could be home to the largest stock of gold deposits held in dingy lofts and clandestine lockers. The nation would unlock and sublimate this idle wealth and the investors would earn some income by endearing the scheme to the people.

Investors in gold always take a sanguine view it is one asset which steadily rises in value. Indeed, experience shows that with the weakening of the US dollar, golds stock is all set to scale new highs every now and then. In fact, many see in the dollar debacle a perverse revenge by the gold standard which was abandoned by the US in the wake of the first oil shock gold prices may reach such a level that the value of the entire stock of gold would match the entire stock of US dollar in circulation, which incidentally was what gold standard was all about.

Therefore, the optimism on the part of those who have piled up gold is not misplaced but it does not mean that they should wait for the rainy day to en-cash their investments even while staying put they should earn substantial interest by parking their gold under the scheme.

Rent out

There are house owners who adopt a similar smug attitude. Not for them is the risk of giving a property on lease. The property in any case would fetch huge capital gains is their refrain. But the point they miss is the regular income that could have been generated had they given the property on rent. After all, all tenants are not dishonest.

Those who invest in shares look to market appreciation and are reassured when their portfolio registers appreciation day after day. But come to think of it, they too have kept their wealth idle given the fact that dividend which is given on the face value is hardly an adequate recompense, especially when one has got the shares at a heavy premium which is the norm these days.

Short-selling shares

These investors can now get regular income by renting their shares to FIIs and other investors who short sell shares in the stock market. Short selling refers to selling shares without having possession of the same. SEBI does not allow naked short sales, which means, on settlement these sellers have to arrange for delivery by hook or by crook.

The easiest way is to borrow the requisite shares under the stock-lending scheme. This scheme then not only bails out the short sellers but also enables those nursing their investments to earn a steady income. Who said rent seeking is a bad trait?

S. Murlidharan
(The author is a Delhi-based chartered accountant.)

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