With the arrival of Akshaya Tritiya, gold shops are offering attractive discount to customers, as the occasion is considered auspicious for buying the yellow metal. However, with gold transactions being highly regulated and the added tax burden, gold as an investment may not be such a wise option.
With jewelers eating up a large pie of the money you spend on buying gold, if you want to invest in the metal as a pure investment to hold it as an asset, there are some good options other than buying physical gold.
The scheme involves buying a gold-backed Exchange Traded Fund (ETF) whose price moves according to the price of gold. These are freely traded in the market and managed by professional fund managers and may entail a management cost as well as brokerage cost. They can be sold at any time on the market.
With jewelers deducting a percentage while exchanging or buying gold, the ETFs’ extra costs may add up to be similar or lesser in most cases. Also, the price at which the ETFs are traded at is much close to the actual price of 24K gold as opposed to most gold jewelry in India being made at 22K.
These are basically mutual funds (MFs) that invest in Gold ETFs instead of regular ETFs. They also invest in some other short-term funds. Gold MFs let you take exposure in securities or shares of companies who are in the business of mining and production of gold. Gold mutual funds and Gold ETFs can have different returns as mining and production business performance may not exactly map to gold prices.
While gold ETFs are priced transparently based on international gold prices, gold funds invest in Gold ETFs and other related assets, due to which their NAVs are dependent on gold prices as well as prices of other assets that the funds hold.
One can invest in gold funds without owning a demat account and at the same time set a SIP for the same.
This auspicious time is a great opportunity for those seeking to invest in Gold Bonds issued by the government as they are only released for a fixed window. The latest batch of these sovereign gold bonds (2018-19, Series-I) was announced on April 16 and will be sold through banks, Stock Holding Corporation of India Limited (SHCIL), designated post offices and recognized stock exchanges, namely the NSE and BSE.
The advantage of buying these bonds is that while physical gold bought from jewelers or banks could come at a premium of somewhere around 10%, the price of SGB is close to the actual price of gold.
The issue price for the latest tranche (2018-19-Series-I) of gold bonds is Rs 3,114 per gm of gold and will be Rs 50 per gram less for those who subscribe online and pay through digital mode.
Minimum investment in the bonds is one gram with a maximum limit of subscription of 500 grams per person per fiscal year (April-March). The maximum limit of subscription is 4 kg for individual and HUF and 20 kg for trusts and similar entities per fiscal year.
While it is true that gold in any form should be a part of your wealth portfolio, remember that diversification is an important tool to preserve one’s wealth over a long period and thus it is wise not to only invest in physical gold as your only asset.
(The writer is CEO at Bankbazaar.com)