Skip to main content

Different Ways to buy and hold Gold

There are three ways by which you can have an exposure to gold. But to answer your query accurately, one would need to know why you want to hold gold. Do you plan to buy gold to convert it into jewellery at a later date? Or are you buying it purely for investment purposes?

 

Today, the value of gold is increasingly driven by the demand and supply of paper gold in financial markets. It is a financial asset and is clearly subject to the same volatility as other financial assets as investor interest flows in or out.

If you are looking at converting the metal into jewellery, then the best option available is to buy gold physically in the form of bars and coins. Even if you are looking at it purely from an investment point of view, you could consider this option. While there is no substitute to owning the "real thing", the issue is with storage, safety and insurance. Affordability is also an issue, an investor may not be able to afford to buy bar. Moreover, if you make your purchase from a bank, the latter will not buy it back. To sell your investment, you will have to approach a goldsmith or jeweller and be prepared to pay a margin amount when doing so.

 

One way to invest in gold is to buy into the stocks of gold mining companies. Two funds that fulfil such an objective are AIG World Gold and DSP BlackRock World Gold Fund. On the one hand, this is a risky way to take a position in gold. Gold mining companies face issues such as exploration risks, risk of depletion of reserves, decline in production, mounting production costs which would eat into profits (and the stock price) and labour issues. On the flip side, they embody a neat trait called leverage. Gold stocks can provide positive leverage to gold of (an estimated) 5.4 to 1. What this means is that for every 1 per cent rise in gold, there is a 5.4 per cent rise in the stock. These funds seem to act as a sort of high-beta versions of the gold price itself. However, these stocks can dip in value much faster than a decline in the price of gold.

 

When you buy into such a stock, issues such as PE ratio, the hedging policy of each company, M&A activity, financial performance and other such factors come into play. So the fortune of the stock of one gold mining company is quite different from the prospect of another.

 

Taking both the above into account, a Gold Exchange Traded Fund (ETF) stands out as the best bet. Unlike gold mining stocks, an ETF is a pure play on the price of gold. No other factors come into play. In terms of affordability, liquidity and convenience, the Gold ETF scores over holding gold in its pure form. Since you buy the units from the stock exchange, you can buy an amount you can actually afford. For instance, you may not be able to afford a bar, but you could invest in a few units of a Gold ETF. All you have to do is own a demat account and buy and sell the units on a stock exchange.
 

Finally, let's look at the tax implication. Gold ETF units held for more than a year qualify for long-term capital gains whereas the holding period in physical form has to be three years to qualify for long-term capital gains. Also, gold held in paper form is not liable for wealth tax.

 

Popular posts from this blog

What is Electronic Clearing Service (ECS)?

  As the name suggests, it's an electronic process through which money can be transferred from one bank account to another. According to RBI, this mode is usually used for regular payments and receipts, like distribution of dividend, interest, salary, pension etc. This mode is also used for collection of bills for telephone, electricity, water, various types of taxes, payment of EMIs , investments in mutual funds , payment of insurance premium etc. There are two types of ECS , like most other banking transactions, ECS credit and ECS debit. An ECS credit is used by a bank account holder , usually a large company or an institution for services like payment of dividend, in terest, salary, pension etc. If your mutual fund pays you dividend to your bank account, of all probability it is being paid through ECS credit.ECS debit, on the other hand, is used when a company or an institution is getting money from a large number of people. For example if you are investing in a mutual fund sc...

WEALTH TAX

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300 WEALTH TAX   WHAT CONSTITUTES WEALTH? For wealth tax purposes, "wealth" means property , urban land, car, jewellery , yacht, boat, aircraft and cash in hand in excess of Rs 50,000. CAUTION POINT | Do not think you will have an easy escape from wealth tax by transferring your `wealth' without consideration to your spouse or minor child. Such assets will also be considered as your wealth. HOW TO DETERMINE YOUR TAXABLE WEALTH Add the taxable value of the above assets (computed as per the detailed rules for valuation) owned by you as on March 31 (for FY 2014-15, it will be March 31, 2015). In case you sold your car during the year, it will not be taxable wealth. Deduct loans if any obtained by you to acquire any of the taxable assets from the value of gross tax out for at least 300 days in a...

Equity Savings Fund

Invest Equity Savings Fund Online   The best part about these funds is that they are subject to equity fund taxation and at the same time are structured like MIP like funds . This new category, equity savings funds , offer a little of everything. They allocate money to equities & equity related instruments, and fixed income. They aim to generate returns by diversification. Such funds invest in fixed income and arbitrage to protect the investors from short term volatility and equity for capital gains. The best part of these funds is that they are subject to equity fund taxation and at the same time are structured like MIP funds.   MIP funds however are subject to debt fund taxation. Investors Equity savings funds are suitable for the following: First time investors who seek partial exposure to equity with less volatility and greater stability Investors seeking moderate capital appreciation with relatively lower risk Those wh...

How to Pick Top Performing Mutual Fund Schemes

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   How to Pick Performing Schemes  Funds that continue to stay in the top grade of performance over longer periods are the ones to bet on, advise investment experts   The mutual fund performance charts of the past few months make for an impressive reading. Funds across all categories boast of stellar returns. Sample this: The mid and small cap category has averaged 77 percent return over the past 12 months, with the best fund delivering a staggering 120 percent. The tax-saving funds also average an impressive 51 percent, including a fund which has soared 92 percent. Many of the table-toppers are funds of proven quality and track record. However, there are also schemes that are not that well-known. Some of these have rarely made it to the performance charts in the past, yet, of late, they bo...

8% Government of India Bonds quick guide

For those seeking comfort in safety of returns, the Government of India issued 8% savings bond once again comes to the fore. First launched in 2003, these bonds are issued by the government with a maturity of 6 years. The bonds are available at all times with specified distributors through whom you can apply to invest in them. Here is a quick guide to what the bond offers and its features to ascertain to check for suitability. What are Government of India bonds Government of India bonds are like any other government bonds with specified rate of interest. The rate is fixed at 8% per annum paid half yearly, or you can opt for cumulative payment of interest at the end of the tenure. You can buy these bonds from State Bank of India and its associates, other nationalized banks and some private sector banks such as HDFC Bank Ltd and ICICI Bank Ltd, among others. The bonds can be bought from the offices of Stock Holding Corporation of India as well. They are available in physical form onl...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now