Being an Indian, we all love Gold. Every Indian family owns a little bit of it. For Eras, Gold has been considered as one of the propitious gift in India for any occasion, whether it’s during festivals, family celebrations, etc. It is considered one of the best investment options and used as a hedge against inflation. Over decades, India has always been the world’s largest consumer& importers of gold.
Why Invest In Gold? One of the most important advantages of investing in Gold is its ability to sustain a portfolio & protects it against market variations. During time of economic crisis, Gold prices have always shown better stability as compared to other investment products. Historically, gold prices have always shown better stability even during time of market crisis, as compared to other types of investment. Gold has cater stable returns during the long run. Gold – taken as a currency, commodity and investment for thousands of years – it is popular amongst today’s investors as it can be used as a hedging tool against devaluation, inflation or deflation of currency, and due to gold’s ability to provide a "safe haven" during times of economic crises.
Various Ways to Invest in Gold. Investment in Gold can be done in two ways either in physical form (Gold coins & bars through bank & Jewellery) or in Non-physical form (Gold ETFs, Gold Fund of Funds, etc. through brokers or authorized entity).But which amongst these is the smartest way to invest in gold? Let us find out……..
Gold ETF is the smarter way to invest in gold. Gold ETFs are units representing physical gold, which may be in paper or dematerialized form. These units are traded on the exchange like a single stock of any company. 1 ETF unit = 1gm. of Gold in spot.
Here is why Gold ETF is smarter way to invest…- Price approximately equal to one gram of Gold.
- No premium or making charges.
- Backed by physical Gold holdings of 0.995 purity.
- No wealth Tax.
- Long term capital gains for one year.
- No STT.
- No storage issue and fear of threat.
- Listed and traded on the NSE with a minimum lot size of 1.
Investing in gold via ETFs or through gold funds is a much recommended option instead of buying physical gold. Recently, small investors have started preferring to invest in the yellow metal through Gold ETFs instead of putting in physical form like bars and jewellery. ETFs offer you many advantages over physical gold—transparency is one of them. There is no question on quality as you buy gold in paper form and gold bullion equivalent to the same is held in 99.5% purity. Gold ETFs can be easily liquidated through the brokers at transparent prices available on the exchanges and you get the same price for them across India.Also, in case of ETF, there are no making charges. In ETFs, liquidity is high as they are traded on stock exchanges or the same can be redeemed by fund houses. Further, they are more tax efficient and they become long-term capital gains if held for at least a year, unlike physical gold that becomes long-term capital gain only after three years. Safety is another feature which makes ETFs a better option since there is no risk of theft.If you buy physical gold, there are three principle associated costs - storage, insurance, and transportation. Insurance is dependent on the volume of gold you own; however, both storage and transportation costs are less dependent on minor changes in volume.
I am a small investor. Is it easy to accumulate gold in small quantities through ETF…? With Gold ETF you can even buy one gram of gold at a time since each unit is roughly equal to the price of 1 gm. of gold.
I am a HNI. Can I convert my ETFs into physical gold…? AMCs will permit you to redeem your ETFs in the form of physical gold as long as you hold the equivalent of 1kg of gold in ETF form, or in multiples thereof. So if you are a big buyer of physical gold, it makes sense to compare the Gold ETF ( plus brokerage costs ) with the cost of buying physical gold(plus custody,insurance,VAT & wealth tax).You may find that buying ETFs & then either selling them for cash or redeeming them in kind may be more flexible & cost-efficient for you.
Tax Aspects In the budget 2015, Mr. Arun Jaitely (Finance Minister) revised the tax structure for all non-equity mutual funds including Gold ETFs and Gold savings funds. According to the new structure,the minimum holding period for these funds to qualify for long-term capital gains (LTCG) tax has been increased from 12 months to 36 months. In addition, LTCG tax rate on these funds have been increased from 10% to 20% with or without indexation.
In my opinion, if you want gold for investment purpose ETF GOLD is the best option &if you want gold for your personal use then you can opt for physical gold. I suggest everyone who wishes to invest in Gold should consider investing in Gold ETFs. Gold ETFs can be easily sold at transparent prices through the exchange whereas it is relatively difficult to sell the gold coins and bars. Most banks and jewelers do not buy back the physical gold. Moreover, there is no transparency of prices and they also deduct heavy charges. Furthermore, the expenses incurred in buying, selling and storing physical gold is much higher than the cost involved in buying and selling Gold ETFs. Now choose the appropriate route to sparkle your financial life by investing in the sparkling asset.
This blog is written by Gaurav Arora student of Post-Graduation in Financial Planning, International College of Financial Planning (ICFP)
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