Skip to main content

Ways to invest in Gold - Which is best option?

Tax Saving Mutual Funds Online

Current open Infra Bond Application form

In recent years gold has delivered exceptional returns. In a span of about 6 years — from 2006 to 2011 — gold has given an average return of an "incredible" 29% per annum. Therefore, it is but natural to be attracted towards gold. But let's not forget history. In 1980, gold prices jumped from 300 $/oz to 600 $/oz due to Gulf crisis. But soon thereafter fell to about 450 $/oz in 1981 and then NEVER crossed the $450 mark until 2006. In other words, gold gave ZERO returns over a period of nearly 25 years. The question, therefore, arises — are we going to witness something similar once this worldwide financial crisis is over? Is this a bubble that will burst? The answer, unfortunately, will be known in the future only.

Therefore, caution is advised, if you intend to invest in gold — especially now when it is trading at historic levels of 1600-1800 $/oz. However, from the asset allocation point of view, some portion of one's portfolio should be in gold. Accordingly, let us explore the different avenues available today to invest in gold.

a) Physical gold from jewellers/banks
Buying physical gold from jewellers has been the traditional way since centuries. And within physical gold, jewellery has been the most common form of purchase. The balance, in relatively small quantities, has been the gold coins and bars.

Recently, banks too have started selling gold coins/bars.

b)  Gold ETFs
Gold ETFs are mutual fund schemes that invest only in gold. Thus it is as good as holding gold; except that it is held electronically. Generally 1 unit of Gold ETF is roughly equivalent to 1 gram of gold and hence its price is also roughly equal to price of 1 gram of gold. You can buy a minimum of 1 unit of Gold ETF.

Recently, a fund-of-fund (FoF) type of scheme has been launched that invests in Gold ETFs. There is no difference per se, except that these funds do not require a demat account and also enable an investor to do systematic investment planning (SIP), which is not possible with ETFs.

c) Equity-based Gold Funds
These are mutual fund schemes that — instead of investing directly in gold — buy the equities of companies engaged in mining, extraction, processing and marketing of gold.

d) e-Gold
Launched recently by the National Spot Exchange, e-gold is also an electronic form of holding gold — except that herein you are directly the owner of gold whereas in Gold ETF the Asset Management Company is holding the gold (of course, on your behalf).

Unlike Gold ETF, e-Gold also offers the facility of physical delivery. However, given the additional costs involved viz. delivery charges, VAT and octroi, it may be better not to opt for physical delivery.

e) Gold Futures
This is just a short term product useful mainly for 'trading' in gold and not 'investing' in gold. Hence, it is kept out of the purview of this article.

Which option to choose

Given this wide variety of options, it is but natural to ask — which amongst these is the best alternative to buy gold?

If you intend to buy gold as jewellery for personal use, then of course, there is no option but to go to a jeweller. However, it may be noted that heavy making charges involved in jewellery will eat into the returns, if you use it as an investment.

And if bars and coins are desired, jewellers would comparatively be a better option as (a) their charges are generally lower than banks and (b) as on date banks can only sell gold — they cannot buy it back.

But if gold is being bought for investment purposes, holding it electronically has many advantages over physical holding.

• Low cost : To buy Gold ETF or e-Gold, you have to pay only the brokerage charges, which are usually around 0.5%. Vis-à-vis this, you may have to shell out anything between 10 to 20% as premium and/or making charges if you buy physical gold.

Of course, for ETFs you will have to incur the fund management charges (about 0.5-1%) every year, whereas e-gold and gold kept at home with no insurance could mean zero holding cost.

• Transparent pricing: For ETFs and e-Gold, the rates are linked to the international prices. But price of physical gold invariably varies even across various jewellers and banks within the same city. Thus, there are chances of paying more than the international price if you are buying gold from your local jeweller or banker. Moreover, even at the time of selling, you may have to take a large cut, especially if you sell to a different jeweller. 

• Purity: Gold ETF and e-Gold are of the highest purity and duly certified. But for jewellery, you have to trust your jeweller.

• Convenience: To buy Gold ETF or e-Gold, just a phone call to your broker or the click of the mouse is sufficient. You don't have to personally visit the jeweller/bank.

• Security: No one can steal your Gold ETF/e-Gold units. Physical gold, however, carries high risk of theft.

• Capital Gains Tax: In case of physical gold, the long-term capital gains tax becomes applicable only when the holding period exceeds 3 years. This limit is just 1 year in case of Gold ETFs. However, e-Gold is treated as a long term asset only after 3 years.

• Wealth Tax: Physical gold attracts Wealth Tax but Gold ETF is exempt. However, E-Gold attracts Wealth Tax.

So there is a trade-off between Gold ETF and e-Gold. Though e-Gold works out cheaper than Gold ETF as there are no fund management charges (and, depending on your broker, possibly lower brokerage charges also), it is taxable under Wealth Tax and it becomes Long Term Capital Asset after 3 years.

Accordingly, whether Gold ETF is good for you or e-Gold, will be determined by your investment amount, time-frame and applicability of Wealth Tax. 

As regards the other options:

 Fund-of-Fund schemes in Gold ETFs are slightly expensive as, apart from the annual fund management charges of the ETFs, you also have to bear the annual fund management charges of the FoF scheme. Therefore, if feasible, it is better to invest directly into Gold ETF rather than take the Fund-of-Fund route.

 Equity-based gold funds are riskier than gold ETFs/e-gold as there is an added element of equity risk in such funds. Moreover, there are no listed companies in India associated with gold. Hence, these funds have to invest in the international market. Therefore, these funds are essentially global funds; susceptible to currency-risk apart from equity-risk and gold-price risk. Given the substantially higher risk element, such funds ideally suit investors with high risk appetite. For the vast majority, however, buying Gold ETFs/e-Gold would be a more prudent option.

Concluding, therefore, Gold ETF and e-Gold would be the most preferred options amongst the various alternatives.

 

 

---------------------------------------------

Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

 

Invest Tax Saving Mutual Funds Online

Tax Saving Mutual Funds Online

These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

 

Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

 

These Application Forms can be used for buying regular mutual funds also

 

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

  1. HDFC TaxSaver
  2. ICICI Prudential Tax Plan
  3. DSP BlackRock Tax Saver Fund
  4. Birla Sun Life Tax Relief '96
  5. Reliance Tax Saver (ELSS) Fund
  6. IDFC Tax Advantage (ELSS) Fund
  7. SBI Magnum Tax Gain Scheme 1993
  8. Sundaram Tax Saver

---------------------------------------------

Application form for Tax Saving Infrastructure Bond and more information

Current open Infra Bond Application form

 

Submit filled up application    Collection canter near you

Popular posts from this blog

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...

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...

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...

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...

Bharat Bond ETF

Top SIP Funds Online   The government of India has paved the way for the launch of India's first corporate bond ETF called as Bharat Bond ETF. Edelweiss Mutual Fund will be managing it. The fund is mandated to invest in AAA-rated bonds of select public sector companies (see the table 'List of constituents and their proportions in the portfolio'). The government has a threefold objective behind launching this product. One, to deepen the liquidity of the Indian debt markets and provide a gateway for easy retail participation. Two, to solve investors' dilemma of picking premium bonds. Lastly, to help the underlying government-owned companies raise funding for their operations. But does it make sense for you, the investor, to invest in it? Lets find out. What is the product? As the name suggests, it is an exchange-traded fund which will be listed on a stock exchange from where its units can be bought and sold post launch. It will have two variants - one maturing in 3 ye...
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