Gold Investment

Are you of the opinion that investing in gold is the best thing to happen to mankind since sliced bread? If yes, then you’re right. Gone are the days when gold was seen merely as an object of beauty or bought out of emotional attachment. Today, gold has the potential to help you grow your wealth and diversify your investment portfolio.

With uncertainty looming all around, adding gold to your investment portfolio has become imperative.

Confused about which form of gold—physical, paper, or electronic—would be most prudent for helping you accumulate funds during turbulent times?

Discover the different forms of gold, the benefits each type offers, why traditional physical gold may no longer be the best option, and much more.

Listed here are some of the ways of investing in Gold:

Physical gold: Investing in gold the conventional way

Quite often, many of us prefer investing in gold the conventional way—through its physical form. This includes jewelry, coins, and bars, which carry emotional appeal, a sense of contentment, credibility, and the benefit of tangibility.

Furthermore, the physical gold market is relatively easy to understand. Simply buy gold with a one-time payment or start investing on a monthly basis to accumulate gold coins or bars.

However, conventional methods of investing in physical gold do come with certain drawbacks.

Why not to go for physical gold?

Buying and holding gold in physical form comes with certain costs—most notably, the locker rent you must pay to protect it from theft or burglary.
Its value may also depreciate, as the selling price is often lower than the market price. For example, if you buy a certain amount of gold from your jeweler and later sell the same piece to another buyer, the quality may be questioned.
You may also have to pay a higher premium—ranging from 5% to 10%—to acquire physical gold.

Additionally, holding physical gold can result in tax liabilities. You may be subject to wealth tax on the total value of your gold holdings.

If the aforementioned drawbacks have made you rethink your physical gold investments, you might consider some unconventional alternatives. These investment options include:

Gold ETFs (Gold Exchange Traded Funds)

The major attraction of gold fund of funds is that it does not ask for demat account. Unlike gold ETFs one can invest without a demat account.

• An investor holds the option to enrol both the ways SIP or STP. As it comes with the benefits of investing a fixed amount of money in sailing highs and lows of gold.
• The minimum investment it requires is 5,000.
• The fund manager shoulders the entire responsibility of transactions on behalf of investors
• Lastly, gold funds help you take the benefits of rupee cost averaging principle through a systematic investment plan.

NSEL’s e-gold/e-silver: Going the e-way

E-gold is launched by the National Spot Exchange Limited represents unique way to invest in gold in electronic form. The primary advantage of going for gold the e-way is that you’ll do away with the physical holding of gold and for that you need not to hold cost thereto. The only cost which you have to incur is the cost of maintaining a demat account and trading account with a broker.

The ease to sell any number of units, hence you can sell any number of units in the secondary market on a real-time basis. Further, this helps saving you from encountering horrendous experience, which remains prevalent during times when you sale gold in a physical form.

Gold Buying Options
Key Issues	Physical Gold	Exchange Traded Funds (ETFs)	Gold Fund of Funds (FoFs)	NSEL e-Gold/e-Silver
Regulator	Not applicable	SEBI	SEBI	Unclear
Pricing Transparency	Varies from jeweller to jeweller. Banks also mark up the price	Transparent-traded on the exchange	Transparent as it invests in gold ETFs	Transparent-traded on the exchange
Pricing	May differ	Linked to world gold prices	Linked to gold ETFs	Linked to Indian gold prices
Selling Option	Jeweller, not bank	Through stockbrokers	Redeemed with same AMC (asset management company)	Through NSEL brokers
Exit Load	Not applicable	None	Applicable for less than 1 year to 2 year	None
Wealth Tax	Applicable	Not applicable	Not applicable	Applicable
Capital Gains Tax	Before three years, short-term capital gains tax. After three years, long-term capital gains tax at 20% with indexation or 10% without indexation	Before one year, short-term capital gains tax. After one year, long-term capital gains tax at 20% with indexation or 10% without indexation	Before one year, short-term capital gains tax. After one year, long-term capital gains tax at 20% with indexation or 10% without indexation	Before three years, short-term capital gains tax. After three years, long-term capital gains tax at 20% with indexation or 10% without indexation
Demat	Not applicable	Regular demat (CDSL/NDSL)	Not needed	New demat (CDSL/NDSL)
Annual Charges	Not applicable, unless you get a bank locker for storing, or buy insurance	1.5% expense ratio allowed, even though most ETFs now charge 1%. Plus demat charges	1.5% to 2% expense ratio allowed	None as of now. Only demat charges
Transaction Charges	1% VAT (value-added) tax on purchase	0.25% to 0.85% depending on broker	None	0.25% + Rs11 per lakh
Remat (conversion to physical gold)	Not applicable	Not allowed	Not allowed	Allowed after paying delivery charge and coin-making charge
SIP	Yes Available	Not available	Yes Available	Not available
Tracking Error	Cannot occur	Can occur 90%-92% in gold and keep the rest in liquid funds	Same as gold ETFs	Negligible
Security of Asset	Investor responsible	Fund house responsible	Fund house responsible	Exchange responsible
Impurity Risk	Possible	Not possible	Not possible	Not possible