Purchase of gold during Akshaya Tritiya or other such occasions is a part of the Indian tradition. There are various ways to invest in Gold.
Chintan Haria, Head of Strategy and Product Development, ICICI Prudential AMC says, “What is often forgotten is that there is a better form of investing in gold without having to worry about the safety aspect – through Gold ETF or paper gold.”
Gold ETFs invest in gold bullion which is similar to investing in physical metal but is held in electronic form. Experts say, investors can buy as low as one unit and the expenses associated with it tend to be much lower when compared to physical gold investment.
Haria says, “In terms of portfolio allocation, investors could consider allocation 10 per cent to the yellow metal. Also, in the current lockdown, it is easy to purchase Gold ETF from the comfort of your home through the website or mobile apps.”
Why should one choose Gold ETFs instead of physical gold for wealth creation?
According to industry experts, having an optimal asset allocation is important for long term wealth creation and gold is one of the asset classes which form a part of the portfolio.
Haria says, “When it comes to investing in gold, Gold ETFs offer multiple advantages. Gold ETFs allow investors to take exposure to gold in a cost-efficient manner. One need not worry about the purity of gold, storage hassles, east to transact as one can buy and sell on the exchanges, anytime during the trading hours of the day.”
Here is how Gold ETFs stack up when compared to physical gold;
Here is how Gold ETFs stack up when compared to physical gold;
Parameters | Physical Gold | Gold ETFs |
Investment | Available in the standard denomination of 1/10gms | No standard denominations here. Starts with as low as 1gm unit which is around Rs 50. |
Making charges | 10-20% of the total cost | No making charges |
Purity of Gold | No guarantee on Purity | 99.5% purity of gold |
Pricing | Pricing is never uniform, varies from jeweller to jeweller | Pricing is per international standards and is transparent. No room for variable pricing |
Wealth Tax | One per cent wealth tax is applicable if the value of physical gold possessed by an individual is more than INR 30 lakhs | Not applicable |
Returns | Is calculated as follows: Current price of a gold minus buying price plus making charges of an ornament | Return is calculated by taking the current NAV (the price of a gold unit trading on the stock exchange) minus purchase NAV |
Storage Cost | The cost incurred on bank lockers | None. Units of ETF are held in electronic/ Demat form |
Liquidity | Can be purchased from jewellers or banks, but the exchange is possible only through jewellers | Buying/selling of the gold ETF is much easier as it is traded on the stock exchanges – NSE and BSE |
Short Term Capital Gains | If held for less than 3yrs, then short-term Capital Gain tax is as per the Income Tax slab | Same as physical gold |
Long Term Capital Gains | If sold on profit after 3yrs then a capital gain tax of 20% with indexation is applicable | Same as physical gold |
Around a month back, Gold came down to about Rs 10,000 discount to record highs and has been gaining momentum again.
However, experts say another covid wave may give Gold a fillip again – hence, is it the right time to invest in it right now?
Haria says, “Post the recent correction, we are positive on gold on relative valuation with equity and debt. Since there is a possibility of inflation spiking and given that gold acts as a hedge against inflation, investors can consider around 10 per cent allocation to gold in their portfolio.” Having said that, as per one’s requirement, one can consider investing through the SIP route.
According to the latest AMFI data, the monthly flows in Gold ETFs increased by 35 per cent (MoM) in March 2021. It states that investors appear to have turned their attention to Gold ETFs. It is so because, Haria adds, “with the rise in uncertainty brought about by the second wave of the pandemic, it is very likely that savvy investors would have increased their allocation to the yellow metal.” In India, Gold is considered the go-to asset class during times of uncertainty.