The Hindu Business Line : Isn't investing in gold unproductive?

Recently, the BBC aired a programme about Indians' craze for the yellow metal. It was observed therein that the collective per annum investment in gold by Indians of $9 billion is much more than what the country gets by way of foreign investments.

This perhaps corroborates your view that had Indians contributed this amount for nation building, perhaps we need not even look to foreign investments as a source of finance.

Be that as it may, the Government introduced Gold Deposit Scheme in 1999 pursuant to which one is allowed to deposit his/her gold with designated banks which would send them for melting and give certificate based on purity of the metal.

This would earn a small interest of 3-4 per cent to the depositor, thus morphing an inherently non-income-producing asset into an income-producing one.

Apart from the Tirumala Tirupathi Devasthanamand Mata Vaishnodevi Trust no one else seems to have shown any serious interest in the scheme, perhaps for the fear of coming under the taxman's lens and for sentimental reasons. The scheme promises either return of gold or its equivalent in monetary terms based on the prevailing prices at the time of maturity.

This is not bad at all considering the skyrocketing gold prices globally.

The banks can raise huge amounts of money for on-lending based on the gold thus garnered. This way an unproductive asset would have been put to a productive use. Alas, it was not to be.

Jewel loan

I HAVE purchased a house which is occupied by me for residential purposes. In addition to a housing loan, I have taken a jewel loan from a bank for financing the margin money.

Can I claim deduction of interest paid by me on the jewel loan under Section 24 and of the principal payment for the jewel loan under Section 80C?

Yashwant, email

The question that would be asked for granting deduction under Section 80C is whether you informed the bank the purpose for which the loan is being taken because the section contemplates repayment of loans taken for acquiring a house. Jewels may have been offered as a collateral for a housing loan, which is fine. The same applies for being eligible for deduction under Section 24 towards interest.

Small shareholder on board

MUST every company give representation to small shareholders in the board of directors?

Kirti Sharma, New Delhi

No. In fact, it is not even compulsory for the companies in the context of which the specific provision to this effect has been made so much so that the entire law on the subject has become the butt of a joke.

The law says a public company having a paid-up capital of Rs 5 crore or more and having one thousand or more shareholders as well may have a director elected by such small shareholders in the manner prescribed. That even this tokenism has an in-built escape route is apparent — it is not compulsory.

The truth however is, in most of the listed companies, there would be a large number of small shareholders given the fact that a small shareholder is one who holds shares in a company having a nominal value not exceeding Rs 20,000 and investing in more than 200 shares would be extremely difficult because most of the companies issue shares at mind-boggling premiums as they can under the licentious regime that obtains for capital issues in the country.

This is not to say a token representation of one director can make a huge difference to the quality of governance, especially from the small shareholder's standpoint. He would after all be clearly outnumbered in the boardroom sweepstakes.

Credit rating

CAN one place complete reliance on credit rating before investing in fixed deposits of companies?

Manjula Gopinath, email

Highest possible rating from an accredited credit agency should give a prospective investor the necessary satisfaction as to safety of his investment. Eternal vigilance is not only a price for democracy but also for nursing one's investments.

You must be alive to the developments in the company as well as to those in the industry to which the company belongs and cannot afford to relax guard once having invested on the basis of highest rating.

To be sure, the rating agency itself would revise the rating if called for.

If you are risk averse, you should go for debentures or bonds of reputed companies in the secondary market giving you the same yield or thereabouts because they are invariably secured while fixed deposits are more often than not unsecured.

(ASK! Send in your queries on accounting, auditing, corporate law and taxation to ask@thehindu.co.in)

S. Murlidharan

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