Fiduciary Relationships, Finfluencers and A Note on Gold Bonds

Over the last week, I have seen two or three videos on Instagram explaining how the government deliberately planned to cut the customs duty on gold (from 15% to 6%) to reduce the repayment load on the first ever tranche of Sovereign Gold Bonds, which were due for redemption that week (August 5th). The theme of these videos was broadly calling the duty cut a ‘scam’ and how SGB investors could be at a loss. But were any of these claims true? The short answer is no. The long answer is below.

So, was the duty cut specifically targeted at SGB holders?

No. The duty cut directly hit gold prices, which means it affected anyone and everyone who had invested in gold. So apart from SGBs, if you were holding gold ETFs, gold mutual funds, or even physical gold, you were going to see a small dip in value. When the duty cut was announced, gold prices fell from ~₹7400/gram to ~₹6800/gram.

Aha! So the prices did fall!

Sure, but here’s what the “scam” videos miss. The people redeeming the gold prices bought the bonds at ₹3,119/gram. The redemption price was ~₹6958/gram, which was well above the lowest price of gold that week.

If you zoom out a bit, you can see investors have more than doubled their investments in a span of 8 years, apart from earning 2.5% interest year on year and enjoying tax-free returns on their investments! This clocks in at a 12% return year on year, which can be compared to any index fund/mutual fund investment. Those are incredible returns.

The government is not thinking of you, dear Sovereign Gold Bond holder

Did the government make a saving on redemption? Sure. But the saving is very marginal. It’s important to understand that these import duty cuts on a commodity as important as gold aren’t random moves. If anything, the government faces a massive loss in terms of customs duty revenues on its gold imports. These are larger moves meant to control other events – like the rampant smuggling of gold from overseas and larger economic goals.

What’s more, gold prices are moving back up. So if you’ve invested in gold – in any form – it’s very likely that all you experienced was a minor blip, which is very par for the course for the metal. Gold prices rise and fall in the short term for a number of reasons beyond our control. But in the longer term, the trend has always been upwards.

Finfluencing is not fiduciary

One of the core lessons you learn in your journey towards becoming a CA/CFA or any other financial professional who has the power to advise clients, is that of a ‘fiduciary’. A fiduciary is essentially one who you trust with your money. As a result, the professional is required to make decisions in the client’s best interest, and these decisions include sharing information which is relevant and necessary. You’re paid for this.

Unfortunately, this is the opposite of how content works.

Content works on shock, awe, and, dare I say it, negative sentiments. Calling something a ‘scam‘ will get you more views. “Stay calm” won’t. So it is also understandable why influencers take to scaremongering. This is how you get attention. This is how the platform works. So naturally, moves like these are presented from the angle or lens of ‘scam’/’omg!’ so that the viewer pays attention.

But very little thought is paid to the consequences of framing news this way.

Perspective & professional advice

I have nothing against finfluencers. They’re a great source of information and are obviously key to making personal finance more accessible. That said, please do not take unqualified advice and opinions from the internet. Use their content as a starting point for your own research – and make sure you have consulted a professional/using a paid service to put together your savings strategy.

Remember, nothing in life is free – and if you are taking free advice, you risk paying in the form of your savings.