- In India buying gold means a sign of festivity and prosperity
- But when it comes to investment in gold, do you actually need to keep it in locker?
- Know how to smartly invest in gold without physically owning it
As per a media report, around 40% of gold purchases in India happen in the south. Gold has for long been the favoured way of investment. And why not? Gold is a rare metal; it does not erode unlike many other metals, and it is soft enough to be shaped into wearable items, valuable artefacts, and currency. In India especially, buying gold is closely linked to festivity and prosperity.
However, in this day and age, do you really need to buy gold as an investment? Of course, it would be another matter if you wanted to wear your gold, gift it, or showcase it. But if you wanted to invest in gold, there are many other ways to do it without actually having to own physical gold.
Through these smart gold investments, you lose the need to safe-keep your gold or worry about its purity. Let’s take a look at them.
Sovereign Gold Bond
Launched by the Government of India, one of the primary objectives of the SGB is to reduce the buying of physical gold. Its seventh tranche opened in March 2017, offering not just the possibility of capital gains but also an assured interest income of 2.5% per annum. This being a government-backed scheme, the bond has the highest credit rating. Individuals who are Indian residents may buy these bonds in denominations from one gram to 500 grams in a financial year. Individuals can buy additional bonds up to 500 grams each in a year for members of their family. The bonds are available in paper as well as demat form. You can buy the next tranche through dedicated outlets such as banks, NBFCs, post offices, and trading accounts. Watch out for the announcement of the next trance of SGB.
Gold exchange traded funds are sold by most asset management companies and traded on trading exchanges like stocks. ETFs carry no entry and exit loads. Your investment is linked to the real-time prices of gold, allowing you to enter with an investment as small as one gram. Your gold ETFs are held in demat form, thus nullifying chances of theft and risks of purity. Buying and selling ETFs may cost you brokerage charges as well as a small expense ratio to the AMC.
Gold Mutual Funds
Mutual funds invest in a wide range of securities, and one option they pick is gold ETFs. Most AMCs offer gold-linked mutual funds The great thing about these mutual fund schemes is that you can start investing with sums as small as Rs. 500, which is a fraction of the actual cost of one gram of gold. You can buy, hold, and sell these funds as per your requirements with no limits. Gold mutual funds are considered a form of debt mutual fund, therefore the rules of STCG and LTCG taxation will apply. Units held for less than three years qualify for STCG tax which is as per your tax slab rate, while units held longer than three years qualify for LTCG tax, which is 20.6% with indexation benefits.
A well-known e-wallet had recently announced a gold investment scheme. In it, customers could trade digital gold from their e-wallets. The e-wallet firm had partnered MMTC-PAMP. The gold purchased could be stored for five years with MMTC-PAMP. Customers had the option to convert the digital gold into physical gold and have it home-delivered, or to sell it online through their e-wallet.
(The writer is CEO, BankBazaar.com)
Last Updated 31, Mar 2018, 6:37 PM