What are the advantages of investing in the gold exchange traded funds?

Mallika Mukherjee, Burdwan

There are several advantages and practically no disadvantages at all which is surprising given the fact any system or regime would have a flip side as well. Owning physical gold is fraught with many dangers including the fear of robbery and loss of value due to the rapacity of the jeweller who polishes off a gram or two out of every ten grams on some specious ground or the other including wastage.

Tax authorities too come down harshly on physical gold - they are taxable under the wealth tax law whereas units of gold ETF are not. Starting with a basic unit of one gram, now gold ETFs are prepared to do business with half gram given the skyrocketing gold prices.

Such units can be exchanged either for its cash equivalent at the ruling price of the unit which normally keeps pace with and reflects the ruling gold price or simply for their underlying asset, gold. Gold ETFs also guarantee purity of gold thanks to their expertise whereas when you buy yourself, there are chances of adulteration marring the true worth of one's investment.

Scarcity value

What is the concept of scarcity value in economics?

Bhanu Pratp Rudy, Purnia

You can easily understand the concept with the help of a simple example. Water is not priced judiciously in India which explains its colossal wastage and indiscriminate usage.

A lot can be learnt from the US which recycles its used water for washing and cleaning purposes. Potable water should be distinguished from water for cleaning and washing purposesWhy is gold hitting the roof?

The answer is the market reflects its scarcity value with supplies slowly drying up. Fresh discoveries of gold mines are slow and mining from existing mines are becoming more and more expensive thanks to steady depletion.Even oil prices reflect its scarcity value. The same fate awaits water.

Potable water might become scarce in the days to come and one of the ways of discouraging injudicious use of potable water is to price it at its scarcity value i.e. at a price which makes people realise that water is not a perennial resource as it is believed to be.

The reason why governments are unable to take a call on this issue is unlike gold where market can be allowed to fix the price, water is an essential good and cannot be left to the market forces.

All the same, something needs to be done to bring in the concept of scarcity value into play while pricing water.

Health cover for the aged

Isn't it a paradox that those who need health insurance more, like the elderly, are pointedly ignored by the insurers? .

T.K.S. Satyanarayana, Vijaywada

Disease and indisposition are associated with advancing age and yet insurers cold-shoulder senior citizens. But one must examine the issue from their angle as well. You must be familiar with the direct relationship between risk and reward. An insurer obviously takes greater risks by underwriting the health of an old person and naturally seeks to be compensated with a much higher premium. That is why one must start early and build loyalty with the insurer.

Second, the income-tax law now encourages youngsters to pick up the insurance bills of their parents for a sumptuous tax deduction — Rs 15,000 if both the parents are not senior citizens and Rs 20,000 if even either of them is a senior citizen. This is in addition to the deduction for their nuclear family.

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