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

Am you Required to E-file Tax Return?

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   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...

IDFC - Long term infrastructure bonds - Tranche 2

IDFC - Long term infrastructure bonds What are infrastructure bonds? In 2010, the government introduced a new section 80CCF under the Income Tax Act, 1961 (" Income Tax Act ") to provide for income tax deductions for subscription to long-term infrastructure bonds and pursuant to that the Central Board of Direct Taxes passed Notification No. 48/2010/F.No.149/84/2010-SO(TPL) dated July 9, 2010. These long term infrastructure bonds offer an additional window of tax deduction of investments up to Rs. 20,000 for the financial year 2010-11. This deduction is over and above the Rs 1 lakh deduction available under sections 80C, 80CCC and 80CCD read with section 80CCE of the Income Tax Act. Infrastructure bonds help in intermediating the retail investor's savings into infrastructure sector directly. Long term infrastructure Bonds by IDFC IDFC issued an earlier tranche of these long term infrastructure bonds on November 12, 2010. This is the second public issue of long-te...

Section 80CCD

Top SIP Funds Online   Income tax deduction under section 80CCD Under Income Tax, TaxPayers have the benefit of claiming several deductions. Out of the deduction avenues, Section 80CCD provides t axpayer deductions against investments made in specific sector s. Under Section 80CCD, an assessee is eligible to claim deductions against the contributions made to the National Pension Scheme or Atal Pension Yojana. Contributions made by an employer to National Pension Scheme are also eligible for deductions under the provisions of Section 80 CCD. In this article, we will take a look at the primary features of this section, the terms and conditions for claiming deductions, the eligibility to claim such deductions, and some of the commonly asked questions in this regard. There are two parts of Section 80CCD. Subsection 1 of this section refers to tax deductions for all assesses who are central government or state government employees, or self-employed or employed by any other employers. In...

ULIP Review: ProGrowth Super II

  If you are interested in a death cover that's just big enough, HDFC SL ProGrowth Super II is something worth a try. The beauty is it has something for everybody — you name the risk profile, the category is right up there. But do a SWOT analysis of the basket, and the gloss fades     HDFC SL ProGrowth Super II is a type-II unit-linked insurance plan ( ULIP ). Launched in September 2010, this is a small ticket-size scheme with multiple rider options and adequate death cover. It offers five investment options (funds) — one in each category of large-cap equity, mid-cap equity, balanced, debt and money market fund. COST STRUCTURE: ProGrowth Super II is reasonably priced, with the premium allocation charge lower than most others in the category. However, the scheme's mortality charge is almost 60% that of LIC mortality table for those investing early in life. This charge reduces with age. BENEFITS: Investors can choose a sum assured between 10-40 times the annualised premium...

EPFO can pay 8.5% interest in 2009-10

THE Employees’ Provident Fund Organisation can comfortably offer 8.5% interest rate to its 4.41 crore depositors during 2009-10 and still record a surplus contrary to Rs 139-crore losses suffered by it for giving the same benefit during the current fiscal. The issue of return to the depositors would be discussed at a meeting of the ‘finance and investment committee’ (FIC) on Thursday, agenda for which lists that maintaining an 8.5% interest could still give the fund a surplus of Rs 6.4 crore on the investment made by the fund. If EPFO maintains the interest rate of 8.5% on PF deposits, there will be a surplus of Rs 6.4 crore at an estimated income of Rs 12,994 crore in 2009-10. In case the interest is raised to 8.75%, the fund would suffer a loss of Rs 366.77 crore and the deficit would be still higher at Rs 739.94 crore if the rate of interest is fixed at 9%. FIC gives recommendations on financial matters to the apex EPFO body Central Board of Trustees (CBT), which takes the final ...
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