5 things to know before investing in Gold in India

It is observed that during high volatility and Bear Runs, Gold prices tend to move up thus providing hedging to your red portfolio during difficult economic times. The demand (and the price in turn) for gold usually increases when the stock market crashes or falls. The price of gold also rise by a significant margin if major currencies, like dollar, tend to fall weak.

Based on our research, we found following options worth considering to invest.

i) Sovereign Gold Bond (SGBs): Best Investment option for Gold. These bonds usually come with a lock-in period of 5 years and with a term of 8 years, although can be sold anytime in secondary market (NSE/BSE). If SGBs are held till maturity, there is no capital gains tax applicable on SGBs.There are no management fees charged for this fund, and though backed by gold, they can be redeemed only in cash and additionally provide guaranteed periodic interest payments (at 2.5% p.a.). These are sold through banks, post offices, Stock Holding Corporation of India, and authorised stock exchanges.

ii)Gold ETFs: These are traded on the stock market and all you have to do is open a Demat account (usually, these have brokerage charges). You don’t buy or own physical gold, but you get exposure to the performance of gold in the market. NIPPON INDIA ETF GOLD BEES has the highest liquidity among all available Gold ETFs.
Gold ETFs have no entry or exit loads and have no making charges. The only cost that you have to pay is the brokerage on transactions. Nowadays, with discount brokers like Zerodha, Gold ETF units can be bought without paying brokerage. In Gold ETFs, Long-term capital gains tax is taxed at 20% after indexation on gold ETF investments held for more than 36 months. However, If you are holding the fund for less than 3 years, then the capital gains will be taxed as per your income tax slab rate.

iii)Gold Mutual Funds : invests in the units provided by Gold ETFs. As the underlying asset is held in the form of physical gold, its value is directly dependent on the price of Gold. This functions just like any other Mutual Funds. Tax treatment is similar as Gold ETFs as mentioned above.

iv) Physical Gold: Don’t invest in Physical Gold owing to major disadvantages viz., fear of theft and robbery and bank locker charges and high making charges. There are a ton of gold schemes in the market, which are mainly floated by the jewellers. These schemes work like a SIP where you deposit a certain sum of money every month at a jeweller. Once the scheme expires or matures, you can purchase the gold for the invested amount. However, in our opinion one should avoid this kind of investment.

vi) Digital Gold: Stay away from Digital Gold because of associated risks and high charges. So far, Digital gold investment is not regulated in India, so investors would have limited recourse if things go wrong.
In practice, the price of buying Digital Gold is approximately 3-4% higher than the selling price offered by platforms that sell Digital Gold (high spread). Additionally, investors have to pay 3% GST while buying.

Verdict :

1. Sovereign Gold Bonds are the most suitable choice if you plan to stay invested for a period of 5 years or longer. Not only will you receive regular interest payouts while you stay invested, but you will also have the option of redemption of these bonds at maturity i.e. after completion of 8 years is also tax-free.
2. In case you are looking to stay invested in Gold for the short term i.e. no more than 3 years, you can opt for Gold Mutual Funds or Gold ETFs, which have high liquidity and availability.

Disclaimer:

The information herein is meant only for general reading purposes and the views being expressed only opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The document has been prepared on the basis of publicly available information and other sources believed to be reliable.
Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Recipient alone shall be fully responsible for any decision taken on the basis of this document.

Stay blessed and Keep rocking!