These tips will go a long way in helping you make informed decisions when it comes to purchasing or investing in gold this festive season.
Gold strikes back! The investment that was almost dead since it touched Rs 32,950 in 2012 is once again reaching new heights in 2019. The spot rate (Ahmadabad) for 10 grams of gold was around Rs 38,295 on 24 October 2019, according to mcxindia.com, which is close to its all-time high in the Indian market. So, the question that naturally arises in the investor’s mind is: Should they should invest in gold at this level? Let’s find out.
Historically, gold prices have peaked whenever the economy goes through uncertainties. The situation is similar today. The trade war between China and the US, the tension in the Middle East, protectionism in various countries, Brexit and Hong Kong issues amid several domestic developments are collectively making investors jittery. Gold, being one of the safest options to park money, is, thus, high on demand and hence its price has skyrocketed.
Investing in gold this Dhanteras
Gold is considered a safe haven for investment among all asset classes. Its value doesn’t fall drastically, unlike other assets such as stocks, bonds, or commodities. Gold prices often react opposite to the market risk. It is durable and liquid. So, it is advisable to have a part of your savings to be invested in gold – something that gets furthered during the festival of Dhanteras. However, buying physical gold in a large quantity at this point may burn a hole in your pocket; as such investors may consider buying a small quantity or limit their festive purchases to symbolic ones for the time being and buy gold when prices stabilise. If you’re unsure about whether to go for it now or not, read on as we discuss some of the other ways to invest in the coveted yellow metal.
Systematic buying of gold
You can plan to buy a small amount of gold every month. It will not put much pressure on your finances and also take care of price fluctuation more effectively. For example, if the price goes down, you can buy more gold with the same amount and if the price goes up, you can buy less. Also, when the prices go high, your gold holding’s value will increase.
Monthly schemes offered by jewellers
If you do not have enough money to buy gold, there is a solution for this too. Some jewellers have come up with a monthly gold scheme. Under such schemes, you have to pay a monthly instalment to the company for a defined period. This can be anywhere between 1 year and 3 years. Once the tenure is over, you can use that money to buy jewellery. The monthly instalment can vary depending upon your capacity. In most cases, the scheme can run for 12 months, but you have to pay a monthly instalment for 11 months only. The company contributes the last month’s instalment, and you can buy jewellery using the corpus.
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Enrolling in such schemes is easy. You just have to walk down to the nearest jewellery shop that offers such a scheme. Complete a few formalities of proof, and you are all set. However, before enrolling for such a scheme, check the authenticity of the seller and get the terms and conditions in writing. Read the fine line of the offer document to avoid getting duped in such schemes.
Sovereign Gold Bonds (SGB)
SGB is a gold scheme issued by the Reserve Bank of India which doesn’t involve buying physical gold (hence, free of purity and storage concerns). These are gold denominated bonds which investors can buy through qualified banks and stockbrokers and come with a maturity period of 8 years. However, investors can redeem them after the fifth year. During the holding period, investors receive simple interest at 2.5% on their investment which is credited to their account every 6 months. Moreover, on redemption after 8 years, there is an exemption from capital gain tax. The returns depend on the price of gold at the time of investment and at the time of redemption.
Other important points to keep in mind
Remember there is a difference between investing in gold coins or biscuits and gold jewellery. Gold jewellery also involves making charges which can be anywhere between Rs 200 and Rs 1,000 per gram, depending on the design of the jewellery. Hence, when you buy gold jewellery, say at the end of the monthly scheme’s tenure, the price may include the actual weight of gold with making charges.
While most gold-sellers have different rates of gold-buying (usually at a discount on the spot rate) and gold-selling (often at a premium on the spot rate), it may take away a substantial part of the investor’s gain. Also, if you invest in gold jewellery, you won’t get the ‘making charge’ back while selling it, so it further reduces your return. Lastly, there’s a 3% Goods and Services Tax (GST) on the value of gold and another 5% GST on making charges.
There’s another gold investment option that investors can consider – investing in gold mutual funds. Investors can choose to invest in lump sums or through the Systematic Investment Plan (SIP) mode in such funds. The returns are linked to gold prices and are considered short-term capital gains if units are held for less than 36 months and taxed according to applicable slab rates. Units held for more than 36 months are considered long-term capital gains and are taxed at a 20% rate plus cess with indexation benefits.
These tips will go a long way in helping you make informed decisions when it comes to purchasing or investing in gold this festive season. Wish you and your family a very prosperous and joyous Dhanteras and Diwali!
(The author is CEO, BankBazaar.com)