Gold will not glitter at all times

I had taken Rs 3 lakh as personal loan three years ago and invested in gold. My investment yield is higher than my interest outgo. Is it advisable to take a loan by pledging my gold to invest in gold? — Ravi Shankar

The reason people hold gold is as protection against risks of inflation or a weak economic outlook outcomes. Over the last three years gold ETFs have clocked compounded annualised return of 30 per cent. As you have not disclosed the interest rate, we presume you availed personal loans at 15-16 per cent. The big rally in gold could have offset the interest cost. No asset class will continue to grow in one direction. If you wish to avail gold loans the interest cost could be between 15 and 24 per cent. If the speculative interest wanes, the price rally would get moderated when equity markets too revive. Due to these circumstances you may find it difficult to make a profit after servicing the loan. If you prefer to accumulate gold as an investment, invest surplus. Minimum investment in a gold fund is as low as Rs 1,000 a month. By investing surplus you will not face loses even if the price corrects as it will help you to average the costs of your investments.

I am 56 (my retirement age is 60) working in an organisation where I am not covered under any pension. I had purchased a two-bedroom flat 15 years ago. I have identified a new flat in the same locality with three bedrooms. If I sell my flat, I will have a shortfall of Rs 30 lakh to buy the new flat. As I can't close my loan before my retirement, is it advisable to take loan jointly with my daughter who is in a software company? Even if my daughter is not able to meet the monthly EMIs after her marriage, I can settle the outstanding from my retirement benefits of Rs 40 lakh. I have other investments of Rs 10 lakh. — Chandrasekhar

Individuals close to retirement should evaluate investments carefully. The house you live in will not yield any returns for your survival. If your monthly household expenses are taken care by your investments, you can consider buying a bigger house. As your current incomes are not eligible for higher loans, taking joint loan with your daughter may not be advisable. Home loans are long-term loans. If after marriage she resigns the job or moves out of Chennai and prefers to take another home loan with her spouse, she may find it difficult to service both loans.

In that event if you try to close the loan with your retirement benefits, meeting your household expenses will become challenging. Considering all the parameters, if you still prefer to move to a bigger house it may be prudent to buy a house within your limit without exhausting retirement benefits.

I am planning to buy a car for Rs 6 lakh by availing a auto loan. Is it better to take a loan now or to wait for the interest rates to correct? If I take a loan now and by chance if the interest rate goes down, will I get the benefit? Instead of an auto loan, is it worth a loan on my investments? I have invested in few traditional insurance plans of LIC and their accumulated value is Rs 7 lakh. I have invested in shares but my value corrected by 30-40 per cent and present value is Rs 3.5 lakh. — Barani Kumar

If you wish to avail a car loan from banks, the interest rate could be 12-13 per cent. Besides processing fee of 0.5 per cent of the loan amount, some banks have foreclosure charges of 3-4 per cent. Mostly car loans are fixed rate loans, so you will not enjoy the benefits of falling interest rates. With the inflationary trend, interest rates are unlikely to come down in the near term. But if you are cost conscious, it is to better to try and raise a loan from your insurance policies. The maximum loan amount available under the traditional policy is 90 per cent of the surrender value. The rate of interest charged on the loan is at 9 per cent and it has to be paid on a half-yearly basis.

For instance, if you avail a car loan of Rs 5 lakh at 12.25 per cent for a tenure of five years, the repayment will be Rs 6.71 lakh, apart from your processing and other charges. If you avail a loan against your policies, the interest payable will be Rs 1.24 lakh. The effective savings will be Rs 47,000. Besides, there will be no pre-closure penalty and processing fees. A point worth noting here is that if the policy matures before closure of loan, the outstanding will be adjusted against the maturity value of the policy.

Availing loan against shares are expensive than car loan. For instance SBI offers car loans at 12.25 per cent against 16.5 per cent for equity shares. Besides that if the value of the shares goes down drastically you may need to provide additional securities. So it's better to avoid loan against shares.

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