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There is an old proverb “Everything That Glitters is Not Gold”, In this blog let’s understand is Gold a perfect investment choice, and how much should we buy?
In Indian household gold has been closely attached to emotional bonding. Historically we have been valuing a person by how much Gold does the person possess. Today we have different ways to buy and invest in gold but the most important factor that we have to consider before you start accumulating gold is that we should understand the purpose of accumulating gold. If one is looking at gold as an investment then you should consider the following investment assets that are available in the market.
- Gold ETF- Gold ETFs are nothing but gold mutual funds that are traded in the stock exchanges. They are passive funds that represent the price of physical gold. The advantages of Gold ETFs are they are low in investment cost. They are in demat format.
- Gold Fund of Fund– These hybrid mutual funds invest in a set of Gold ETF managed by professional fund managers. They do not need a demat account to invest in Gold FOF. The biggest advantage one has here is they can be invested systematically through SIP.
Sovereign Gold Bonds – Sovereign Gold Bonds are government instruments representing grams of gold. They are an alternative to investing in physical gold. You will have to pay the issue price in cash and on maturity of these bonds you will get cash as redemption. The bonds are issued by RBI. On behalf of the government. SGBs are sold through banks, Stock Holding Corporation of India Limited (SHCIL), post offices, NSE and BSE through stockbrokers.
Physical Gold acquisition is the oldest form of the gold holding which is followed right from the days when Kings ruled India. We have been emotionally attached to this metal which is the symbol of prosperity and symbol in society. But are they good for investment? Actually saying it is a Big NO.
Find out why.
Physical gold is purchased as gold ornament and jewelry which attracts these hidden charges. Making charges which is normally 2% of the total value of the gold. There are wastage charges which are nothing but the scarp that wastage of gold during making them into a beautiful jewel. The wastage is normally 10% to 20% depending upon the kind of the jewel. Then we have the GST which is 8%.
Moreover the gold that you buy is not 24 karats they are 22 karat.
Assuming you have purchased gold at Rs.4000 per gram, and you wish to sell at Rs 4500. You might think it is Rs 500 as gain but in real terms you have paid 30% more on purchasing the gold which is Rs 1200 on Rs 4000 (per Gram). Your on net loss of Rs 700 per gram.
Tax on Gold Investment
1% wealth tax on investments over 30 Lakh on investments 20% capital tax is taxed on both gold jewelry and Gold ETF.
Conclusion
Physical gold is good as jewelry and ornaments but when it comes to investment it is always wise to invest in digital gold such as ETF and Bonds.