Gold has been always considered a great investment. From buying gold with our salaries over some time, to getting it in weddings or using festivals as a great excuse to invest in it, gold generates great demand in India. There is a heightened demand for it, especially on auspicious days such as Akshay Tritiya, Dussehra, Dhanteras or Gudi Padwa.
Sai Bhosale, a chartered accountant and financial adviser, says gold is an especially important investment for women, especially when gifted during their wedding. “The gold gifted to the bride by her and her husband’s family forms part of ‘Streedhan’. As per Section 14 of the Hindu Succession Act, 1956, read with Section 27 of the Hindu Marriage Act, 1955, she is an absolute owner of such assets received. She has the power to sell, bifurcate, or give it away as she wishes,” Bhosale explains.
However, when we talk about investing in gold, it goes beyond buying a tangible piece of precious metal. Gold, Digital Gold, ETF Gold or Gold Bonds—which one is more suitable for your investment needs? Know everything about investing in gold this festive season.
Is investing in gold in the physical form a lucrative option?
“In recent years, with the introduction of alternatives to gold in physical form, like Gold ETFs, sovereign gold bonds and digital gold, people might wonder if purchasing gold in physical form is a good idea,” Bhosale says.
Bhosale says investing in gold in its physical form can be less beneficial. “Investing in gold in physical form is not a lucrative option due to heavy making charges during purchase or breakage for re-making. Moreover, the storage of gold in physical form takes up a lot of space and has a threat of theft. Bank locker charges incurred for the safekeeping of gold could be an additional burden. Investors in gold can only count on capital appreciation as gold does not generate any current income,” Bhosale points out.
“Another drawback in investing in gold in physical form is that it comes in varying degrees of purity and hence at different prices in the market. It is almost impossible to ascertain purity unless one obtains a purity certificate which increases the cost of the investment,” Bhosale adds.
Gold Exchange Traded Funds (ETFs)
“Gold ETFs are exchange traded funds representing physical gold and are traded on stock exchange,” Bhosale explains. Gold ETFs are a better option for short term investment as “there is no lock in period for holding the investment.” However, before investing in Gold ETFs, one must keep in mind that it comes with additional charges. “Fund houses charge fund management or asset management fees. Also, commission or brokerage is charged at the time of entry and exit from the investment,” Bhosale elucidates.
Sovereign Gold Bonds (SGBs)
“Sovereign Gold Bonds (SGBs) are government securities denominated in grams of gold and issued by the Reserve Bank on behalf of the Government,” Bhosale informs. SGBs work well for investors who are looking for a medium to long term investment.
“SGBs bear interest at the rate of 2.5 per cent per annum on the investment and is taxed under the head ‘Income from Other Sources’ and taxed as per rates applicable to one’s income. On the other hand, capital gains on SGBs are tax-free on maturity. The tenure of the bond is eight years but early encashment of the bond is allowed after the fifth year from the date of issue on coupon payment dates. Exiting from the scheme within five years will attract tax on capital gains at 20 per cent with indexation benefit. If ETFs or digital gold is sold within three years of purchase, gains are taxed as per income tax slab rates applicable to the investor and at 20 per cent with indexation benefit if sold after three years of purchase,” Bhosale spells out.
E-Gold
E-Gold is an investment product offered by the National Spot Exchange Limited (NSEL). Investors can buy gold in an electronic form and the gold bought will reflect in the Demat account.
Bhosale explains that this can be converted into physical gold. “E-gold is less expensive compared to gold ETFs as there is no loading of any asset management charges. Investors can buy gold in a smaller denomination by investing in E-Gold. E-Gold is valued at the prevailing gold price whereas to know the value of ETF one needs to check the NAV of the fund,” Bhosale clarifies.
Conclusion
Bhosale advises that if you are looking for short-term investment and aren’t bothered by the taxation in ETFs, that’s a good choice for you. However, if you are looking for investing long-term and see more tax gains, then SGBs will work well. E-Gold works better than physical gold in the sense that it doesn’t come with the cons mentioned and can still be made tangible should the need arise.
Also Read: Systematic Investment Plan (SIP) Guide For Beginners