Smart Gold Investment

* How to Invest in Gold in India?

Let us discuss in detail how to buy gold in India for investment purposes.

* How to Buy or Invest in Gold Online

Whether you prefer physical gold or digital investments, this article will provide valuable tips for successfully navigating the online gold market. Make informed decisions and explore the potential of investing in this timeless and valuable asset. For long Gold has been considered as a valuable asset and a safe haven for investors. In today's digital age, the convenience of buying and investing in gold online has become increasingly popular. You can invest in the precious yellow metal in several ways online.

* Gold as an investment option

Before proceeding further let us answer a basic question in our mind. Why to invest in gold? Should I invest in gold? Is gold a good investment option?

It is your hard-earned money. So you need to answer these questions before investing in gold. Why do people invest in Gold? What are all the benefits of investing in gold?

There are 2 primary reasons why you need to invest in gold.

  • Investing money in gold is worth it because it is a hedge against inflation. Over a period of time, the return on gold investment is in line with the rate of inflation.

  • It is worth investing in gold for one more very valid reason. That is gold is negatively correlated to equity investments. Say for example 2007 onwards, the equity markets started performing poorly whereas the gold has performed well. So having gold as an investment option in your portfolio mix will help you reduce the overall volatility of your portfolio.

The above 2 points could have given some answers to your question “Is buying gold a good investment?”

Return on Gold investment

* Is it profitable to invest in Gold?

This investment proved remarkable from 2006 to 2011. During that time span, Gold has given an average return of 29% per annum which was any day better than other investment options.

However, the long-term average return on gold investment is less than 10% p.a.

As one can say technically or ironically but history always repeats itself. Therefore, we may once again observe a similarly less than 10% appreciation pattern in gold prices in the near future.

Still, if you want to invest in Gold in India and cannot resist the temptation then these are a few tips on how to invest in gold correctly!

1) Jewellery buying

Our age-old and traditional way of investment is jewelry buying where one can buy gold ornaments, bars, or coins. However, it has its own disadvantages, total buying cost involves heavy making charges (it can be 10 to 20% of total cost). However, when you try to sell the same piece to the same jeweler, he will buy it below market rates and deduct those making charges from the total price of your jewel.

Taxability of Gold Jewels

As per the Indian Income Tax norms, you will be incurred with two taxes while you buy physical Gold. GST on the value of Gold and GST on making the charge.

  • If the jeweler does NOT bill separately for Gold and make a charge, then you have to pay 3% GST for the (billed amount) value of Gold.
  • If the jeweler bills separately for Gold and makes a charge, then you have to pay 3% GST for the value of Gold and 5% GST for making a charge. The GST, while you sell physical Gold is calculated based on the holding period. Since Gold is considered as a Capital Asset, it is accountable to Capital Gain tax.
  • If the holding period is less than 3 yrs, Short Term Capital Gains are taxed as per your income tax slab.
  • If the holding period is more than 3 yrs, Long Term Capital Gains are taxed at 20% with indexation benefits.

2) Investment in Gold coins and Bars

Investment in gold coins and bars is also a better option over jewel buying. You need to decide on ‘Where to buy gold coins or bars?”. You should buy gold bars and coins only from a jeweler. However, Banks also sell gold coins or bars. Then why do we advocate buying gold bars and coins from jewelers? To answer this question you ask yourself “How to sell gold coins or bars in India?” or “Where to sell gold coins in India?”

Banks sell gold coins and bars, but don’t buy gold coins from the bank, because they cannot buy it back. Whereas, the jewelers can buy back the gold coins from you.

How to Invest in Physical Gold in India? Points 1) and 2) could have proved that it is better to invest in physical gold by way of gold coins or bars sold by jewelers in India. In the next points 3) and 4) we will discuss about the paper gold investment options in India.

Taxability of Gold Coins

The taxation while buying and selling Gold coins and bars is the same as that of Gold jewelry. The only advantage of buying Gold coins is that it incurs no or least making charges. This reduces the taxation on making charges.

3) Gold ETF

  • Gold ETFs, or Gold Exchange Traded Funds, allow you to invest in gold without physically owning the metal. They are like mutual funds but traded on stock exchanges like individual stocks. Gold ETFs allow you to gain exposure to the price movements of gold without the need for buying, storing, and managing physical gold.
  • Here are some key features and characteristics of Gold ETFs:
  • Backed by Physical Gold: Gold ETFs are backed by physical gold holdings. The fund manager purchases and holds gold bullion or other approved forms of gold, such as bars or coins, as the underlying asset for the ETF.
  • Tradable on Stock Exchanges: Gold ETFs trade on stock exchanges, allowing you to buy or sell units of the fund throughout the trading day, just like any other stock. They have ticker symbols and can be purchased or sold through brokerage accounts.
  • Fractional Ownership: Gold ETFs offer the flexibility to buy and sell gold in smaller denominations. Each unit of the ETF represents a fraction of an ounce of gold. This makes it accessible to investors who may not have the means to purchase large quantities of physical gold.
  • Cost Efficiency: Gold ETFs generally have lower expense ratios than actively managed funds. This is because the management of the ETF is typically passive, aiming to replicate the performance of the gold market rather than actively selecting individual assets.
  • Liquidity: Gold ETFs are highly liquid investments due to their listing on stock exchanges. You can purchase or sell units of the ETF at prevailing market prices throughout the trading day. This provides flexibility and the ability to convert investments into cash if needed quickly.
  • Convenience and Storage: Unlike physical gold, Gold ETFs eliminate the need for storage, insurance, and security concerns. Investors can buy or sell units electronically, eliminating the logistical challenges associated with physical gold ownership.

Taxability of Gold ETF

There is no GST when you buy Gold ETF. The STCG and LTCG taxation while buying and selling Gold ETF is the same as that of Gold jewelry.

4) Gold Fund of Funds

What is the Gold Fund in India? The gold fund is a Fund of funds that will invest in Gold ETFs on behalf of you. The best part here is that you do not require holding any Demat a/c here.

Then how to invest in Gold Mutual Funds? Just like investing in other mutual fund schemes. As this is like any other mutual fund scheme, SIP investment in gold is possible through these gold funds.

Still buying a Gold fund of fund is a little expensive option, as you have to pay

  • 1) Annual management charges for the underlying Gold ETF
  • 2) Annual management charges of Gold FOF Scheme.

Taxability of Gold FOF

The taxation while buying and selling Gold Fund of Fund is the same as that of Gold jewelry.

Gold ETFs Vs Gold Fund of Funds

With Gold ETFs, you need to open a demat account and pay broking charges. With Gold Mutual Funds, you need to bear the additional charges charged by the Gold Fund of Fund.

If you are buying in less quantity then gold mutual funds may be suitable. If you are buying in more quantity then you can negotiate for lesser brokerage charges from your stock broker, hence gold ETF may be suitable.

5) Equity-based Gold Funds

Here these funds are directly not investing in Gold but investing in the companies, that are related to the mining, extracting, and marketing of Gold. Besides, its performance is purely dependent upon the performance of the fund house and the equities they are investing in.

In the other 4 options, your investment performance will be directly linked to the price movement in gold in India.

However, investment in these funds is suitable for investors with a high-risk appetite.

  • As these are equity-based funds, equity risk is there.
  • There are no listed companies in India associated with Gold. Therefore, these funds trade in the international market and are quite susceptible to currency risk apart from gold risk and equity-based risk.

Therefore after assessing or weighing the pros and cons of each gold investment option, one can conclude that Gold ETFs and Gold Funds are the safest, most profitable, and most preferred options among the various alternatives.

Taxability of Equity-based Gold Funds:

Since you do not invest directly in Gold, your tax treatment will be as per equity income norms.

  • If the equity share is held for a period of less than 12 months, it is considered as STCG. The tax percentage is 15% for STCG on equity.
  • If the equity share is held for a period of more than 12 months, it is considered as LTCG. There is no tax for LTCG on equity.

6) Gold Futures & Gold Options: This instrument is rewarding and has high risks associated with it. The strategy is to use certain hedging tools and trade with a strict stop loss. The last in the list is the Gold options category. If you are the buyer of an option, you can earn handsome returns by paying a premium. The returns are fixed and the downside risks are also not as high as Gold Futures. 

 

Gold futures contracts are financial derivatives that allow you to speculate on the future price of gold. These contracts enable participants to buy or sell gold at a predetermined price (the futures price) on a specified future date. Gold futures are traded on commodity exchanges like the Multi Commodity Exchange (MCX).

Here are key aspects of gold futures contracts:

  • Standardized Contracts: Gold futures contracts are standardized agreements that specify the quantity and quality of gold being traded. The contract size for gold futures typically represents a certain number of troy ounces (e.g., 100 troy ounces) of 24-karat gold.
  • Future Delivery Date: Gold futures contracts have a specified delivery or expiration date in the future. This date represents the point at which the buyer and seller are obligated to either take or make delivery of the physical gold or settle the contract in cash.
  • Long and Short Positions: Market participants can take a long or short position in gold futures. A long position means the buyer agrees to purchase gold at a future date, while a short position represents the seller agreeing to deliver gold at a future date. These positions can be held or closed before the contract expiration through offsetting transactions.
  • Margin Requirements: Futures trading involves using margin, which refers to the initial deposit required by the exchange to open a position. The margin acts as collateral to cover potential losses. Margin requirements vary based on the contract's size, volatility, and market conditions.
  • Price Fluctuations and Profits: Gold futures prices are subject to market forces and can fluctuate based on factors like supply and demand, economic indicators, geopolitical events, and investor sentiment. Traders aim to make a profit from this price movement by buying low and selling high (long position) or selling high and buying back low (short position).

7) Sovereign Gold Bond Scheme

*What is the Sovereign Gold Bond Scheme? 

It is a government gold security bond issued by RBI on behalf of the Indian Government.

The benefits of investing in SGB are really attractive. SGB investment is considered as safest because the issuer is RBI. Also, there is an additional interest of 2.5% along with the benefits of appreciation in Gold price.

  • SGBs are a financial instrument issued by the Government of India, specifically the Reserve Bank of India (RBI), as a means for individuals to invest in gold. These bonds were introduced in 2015 as an alternative to physical gold. SGBs aim to provide investors with the benefits of owning gold while eliminating the need for storing physical gold and addressing the concerns associated with purity, security, and liquidity. Here are some key features of SGBs.
  • Government-Backed: Sovereign Gold Bonds are issued by the Government of India, making them a reliable and secure investment option. These bonds are backed by a sovereign guarantee, ensuring the safety of the investment.
  • Denominated in Grams of Gold: SGBs are denominated in grams of gold, allowing investors to know the exact amount of gold they own. The minimum investment requirement is usually 1 gram of gold, and investors can purchase up to a specified maximum limit.
  • Fixed Tenure: Sovereign Gold Bonds have a fixed tenure, typically 8 years. The bonds carry an interest rate, which is payable semi-annually, providing an additional incentive to investors. The interest rate is fixed at the time of issuance and is subject to revision for subsequent issuances.
  • No Storage Hassles: One of the main advantages of investing in SGBs is that you do not need to worry about the storage and security of physical gold. The bonds are in electronic format, eliminating the risk associated with physical gold storage.

*Taxability of Sovereign Gold Bond Scheme

The interest from the gold bond is taxable as per the Income Tax Act 1961 (43 of 1961).

The capital gains arising on redemption of SGB after maturity is tax exempted. You can also avail of indexation benefits on LTCG when you transfer the bond to other people.

How To Buy Sovereign Gold Bond Online Hdfc Securities - How to buy a ...Sovereign Gold Bonds - 9 things you should know - CapitalGreen

*Buy & sell Gold in paper formPresenting Sovereign Gold Bonds (SGB)

SGB can be bought by paying the issue price and the bonds will be redeemed on maturity in Indian Rupees based on the previous 3 working days' simple average of the closing price of gold of 999 purity published by IBJA.

Features:

Eligibility: The bonds are restricted for sale to resident Indian entities including individuals, HUFs, Trusts, Universities, and Charitable institutions.

Denomination: The bonds will be denominated in units of one gram of gold and multiples thereof.

Minimum Investment: The minimum permissible investment will be 1 gram of gold.

Maximum Investment: The maximum limit of subscription shall be 4 kg for individuals, 4 kg for Hindu Undivided Family (HUF), and 20 kg for trusts and similar entities notified by the government from time to time

Interest rate: The investors will be paid Interest on the amount of initial investment at the rate notified by RBI for a particular tranche at the time of its launch and is payable semi-annually.

Tenor: The tenor of the bond will be for a period of 8 years with an exit option from the 5th year onwards to be exercised on the interest payment dates.

Redemption: The redemption price shall be fixed in Indian Rupees and the redemption price shall be based on a simple average of the closing price of gold of 999 purity of the previous 3 business days from the date of repayment, published by the India Bullion and Jewelers Association Limited.

Benefits:

Hassle-free: Ownership of gold in Demat form, without any physical possession(No risks and no cost of storage)

Tax treatment: The capital gains tax arising on redemption of SGB to an individual has been exempted.

Tradability: Bonds will be tradable on stock exchanges within a fortnight of the issuance on a date as notified by the RBI.

Valuable collateral: Bonds can be used as collateral to obtain a loan from banks

Transferability: Bonds shall be transferable by execution of an Instrument of transfer in accordance with the provisions of the Government Securities Act.

Sov. Gold Bond Upcoming Issue:

*How much to invest in Gold?

5% to 10% of your over assets can be invested in gold.  If you invest more in gold, remember in the long term return on gold investment is less than 10% p.a.

*Is it the right time to invest in Gold?

Many times I have faced questions similar to “When to invest in gold?” or “Should I invest in gold now?” There is no right or wrong time to invest in gold. You need to invest in gold for the long term (5+ years). It is better to stagger your investments over a period of time to average out the cost of purchase.

*How to Invest in Gold Online?

To invest in gold online, you need to:

  • Choose a reliable online platform or broker that offers gold investment options
  • Open an account with the platform and complete the necessary registration process
  • Browse the available gold investment options (such as digital gold, Gold ETFs, or SGBs) and select the one that suits your investment goals
  • Place an order to buy gold online through the platform

In Conclusion

Investing in gold online provides a convenient and accessible means to diversify your investment portfolios. By understanding the different forms of gold, choosing a reliable platform, verifying purity, researching market trends, and taking steps to secure your investment, you can confidently navigate the online gold market. Remember to exercise due diligence, stay informed, and make well-informed decisions to capitalize on the potential benefits of investing in gold.

One can get all types of Gold Investments options with us, except jewelry. 

 

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