Gold must be on top of your mind with Dhanteras being celebrated in most parts of India today. It is an auspicious occasion to welcome home Goddess Lakshmi. Anyway the yellow metal is considered a symbol of wealth and status and has been a part of worship and popular tradition that goes back thousands of years. This explains why everyone wants to buy gold. However, while some people may want to buy physical gold, others might be looking for investing in gold through some other routes. Are you also wondering how to invest in gold? If yes, let us take you through five popular ways:
Gold sovereign bonds
Another tranche of sovereign gold bond scheme is back. Applications for the bond will be accepted from 09 October 2017 to 27 December 2017. You can buy bonds in banks, post offices, stock exchanges offline and online. The minimum investment is 1 gram while the maximum investment is 4 kg per annum. “This is the only gold investment route that earns you a fixed interest rate of 2.5% per annum and tenure is 8 years. Remember the interest paid on these bonds is fully taxable. Thankfully, capital gains on redemption are exempt from tax. If sold before redemption, the benefit of indexation on long term capital gains is available,” says Anil Rego, Founder and CEO of Right Horizons.
Digital gold starting Re 1
Paytm in association with MMTC-PAMP India Pvt Ltd allows you to buy 24K 999.9 international standard purity gold starting at Re 1. The gold bought by you is stored in a secure and 100%-insured facility. For delivery, choose to get your stored gold delivered to you in the form of minted coins (making charges apply). You can buy using Paytm wallet, Debit/Credit cards, Net Banking or ATM Card. This method allows to buy & sell in fractions, for example, 0.1 gm, or in rupees, for example, Re 1 or Re 2 etc. Please note you will not earn any interest on your investment.
Gold stock funds
You can invest in mutual fund schemes which have their exposure in companies engaged in gold mining, processing, extraction and marketing. All you need to have is a demat account. Most of these schemes invest in overseas companies. “Since most of the Indian funds feed into global funds who actually hold the securities, there is risk of adverse currency movement. There is no guarantee of return. Minimum initial investment ranges between Rs 1000 and Rs 5000 on lumpsum basis. There will be1% exit load if you sell off your holdings within a year. Historical returns of these funds have been poor, but if gold stocks in portfolios consistently rise, such funds could be a big winner,” informs Rego.
Like gold bonds, Gold Exchange Traded Funds help you hold gold in paper form. They don’t have purity issues. They don’t force you to shell out locker rents and offer liquidity at prevailing gold prices without ad hoc deductions. However, there is no fixed return since gold ETFs are market-linked. Gold ETFs charge an asset management fee, which means they will always offer lower returns than actual gold. In the past 3 to 5 years, gold ETF fortunes have mirrored the sluggish price movement of gold. While they offer redemption and liquidity on exchanges, they are treated as non-equity when it comes to taxation.
Coins & jewellery
Buying gold coins and jewellery is the most popular way of owning gold, but these are among the most problematic ways to invest. Coins and jewellery are subject to risks like theft, necessitating renting of lockers, etc. Plus, they can attract wealth tax. “The buying and selling is controlled by jewellers who can often quote arbitrary rates. Also, jewellery making entails making charges and some compromise on absolute pure gold. Despite the negatives, however, gold has been mostly purchased in coins, bars and jewellery format,” says Rego.
Now that you know most of the advantages and disadvantages of investing in gold, it’s time to take a smart decision this Dhanteras.