There are four avenues to invest in gold. You can do so through
Ø physical gold (coins and bars),
Ø gold exchange-traded funds (ETFs),
Ø feeder funds and
Ø the e-series (popularly called, e-gold) launched by the National Spot Exchange.
Of these, paper gold is favoured unanimously as an investment avenue. Buying physical gold is not attractive because of the higher purchase price and lower selling price. Storage and safety are the other issues.
Gold ETFs, the oldest form of paper gold, are not favoured by many, as these require a demat account to invest. Fund houses levy an expense ratio of only one per cent. But the extra charges come by way of the brokers' fee of up to 0.5 per cent. The annual maintenance cost of a demat account is `400-500.
Next is the e-gold option. The costs here are similar, but only in the first month. Since e-gold allows Das to invest through systematic investment plans (SIPs), her first month's cost (`400-500) would reduce from the second month, as she will be only incurring brokerage costs. One can accumulate the units over time. And, use these for child's marriage or making jewellery in the future.
However, if you opt for physical delivery, costs will increase further. The delivery option should be the last resort, because of the delivery fee of `200, irrespective of the quantity, and `50 for every such request charged by the depository.
At present, the National Spot Exchange allows exchanging e-gold units into coins or bars of 8, 10, 100 gm and one kg. It charges `200 each for conversion of 8 and 10 gm coins, 100 for 100 gm and no charge for one-kg bar. You will also have to pay a value-added tax at one per cent and Octroi for conversion of electronic units into physical coins (for Mumbai = 0.1 per cent).
You can buy gold in its physical form, such as coins and bars, only from banks and jewellers. Typically, banks will charge you between 1015 per cent higher than the market price. Jewellers will sell it for 5-10 per cent higher. The option is the post office. They charge a premium of 15-20 per cent on gold coins. If Das were to purchase gold from banks, jewellers or post office, she will lose anywhere between five and 20 per cent ( `250-1,000) Finally, there are gold feeder funds. If you do not have a demat account, gold feeder funds are a good option, as it does not make sense to open a demat account only for buying gold via ETFs. In addition, there is an option to do SIPs as well. The only expense here is the expense ratio of 1.5 per cent. This implies that Das will be able to save 4,925 (expense ratio `75) the highest among the four options.
PHYSICAL GOLD
Sold at: 5-10 per cent higher price
Banks don't buy back, jewellers buy back at 10 per cent lower price
GOLD ETFs
Brokerage: up to 0.5 per cent
Expense ratio: 1 per cent
Demat maintenance cost `400-500
Can be redeemed on the exchanges; SIP not offered
GOLD FEEDER FUNDS
Expense ratio: 1.50 per cent
Can be redeemed; SIP allowed starting `100
E-GOLD
Brokerage: 0.25-0.5 per cent
Transaction fee: `20 per transaction
Demat maintenance cost: `400-500
Can be sold at National Spot Exchange; minimum 1 gm gold can be bought via SIP
