Investment in Gold

It’s been a tradition to buy gold in India for centuries; it’s a way of life. The amount of gold people buy would vary as per the financial condition. But gold we all have in some form or the other; traditionally it’s been jewelry and ornaments or coins and bars from the point of saving for a rainy day; in times of need it could be pledged and a loan can be availed against it; but mostly it’s passed on from one generation to the next with lot of sentiments attached. It’s not an uncommon sight to see a young bride wearing ornaments belonging to her grand mother on her wedding day. Gold in India has traditionally been a form of ‘Stree Dhan’ a security; a woman gets from her parents and passes on to her daughters. Over the years gold has emerged as an important asset class which has been providing for capital appreciation apart from providing needs of individuals in form of jewelry and ornaments. Let’s explore the various avenues for investing in the yellow metal.

                  

Physical Gold

This is the traditional way to buy gold in form of ornaments and it has emotional angle attached; and also a matter of great pride and satisfaction along with its visual appeal. Apart from ornaments, coins and bars can be purchased from reputed financial institutions. The disadvantage is the degree of its purity and safety.

Sale of physical gold is taxed at slab rate as short term capital gain if sold within three years and long term capital gain,if sold after three years, taxed  at 20.6% with indexation. Investment in physical gold is liable to wealth tax if total assets are in excess of  Rs.30 lacs.

     

Gold ETF

ETF is exchange traded fund which is an investment fund traded on stock exchanges. One needs to have a demat account. Buying Gold ETF is quite simple like buying equity stocks and can be done with your online trading account. There is no upper limit however; the smallest quantity that one can buy is 1 unit of the gold ETF which is equivalent to 1 gm or ½ gm gold as the case may be. The advantage is there are no hassles of bank lockers and safety and one can liquidate ETF like any other equity stock; and at the same time no loss of making charges or purity issues.

Sale of gold ETF is taxed at slab rate as short term capital gain if sold within a year and long term capital gain if sold after one year, at 10.3% without indexation or 20.6% with indexation.

E-GOLD

E-Gold is a new incarnation of gold, innovated by National Spot Exchange (NSEL), which enables investors to invest their funds into gold in smaller denomination and hold it in demat form. It is available on the pan India electronic trading platform set-up by National Spot Exchange, which can be accessed through members of NSEL or their franchises. It provided a unique opportunity to buy, accumulate, hold and liquidate "Electronic Gold (E-Gold)" as well as to convert the same into physical gold coin/ bar in a seamless manner. In this mechanism investors own the gold which is reflected through the demat account while equivalent physical gold is maintained in the exchange designated vault; and the investors have the option to take physical delivery.  E-gold can be converted into physical gold for quantities as small as 8 gm, while gold ETFs offer the option of physical delivery but only for a denomination of over a kilogram. E-gold wins hands down against gold ETF. In India, the rural community and the middle-to low-income group have a tendency to flock to gold. For the typical Indian investor, e-gold is more suitable as it provides the option of delivering the yellow metal and, hence, bridges the gap between using it for investment and the traditional, auspicious reasons for buying it. Accumulating such a huge amount of gold is not feasible for small investors.

Sale of E-gold units would be taxed as physical gold and investment in E-Gold would also be liable to wealth tax if in excess of Rs. 30 lacs. More on this would follow later. Till then happy investing. Stay Blessed!!