Buying gold is not a problem, if you have the money. But once you go out to reap benefits of price appreciation by selling the yellow metal in its various forms such as jewellery, coins, ETFs or futures, you realise a plethora of charges robs you of the gain
THE investors' interest in gold has increased manifold in recent times and there are several avenues available for an individual to buy it in the metal or paper form.
However, it need not be that easy when it comes to selling the asset.
Further, one may not be able to fully benefit from the price appreciation due to the additional charges involved in each instrument. Financial Chronicle takes a quick look into the intricacies of buying and selling gold in different formats.
Jewellery generally known as the house wife's investment, jeweler is the traditional and still the most popular form of investment involving the yellow metal. Apart from being a growing asset, it also serves a functional purpose of adornment.
The gold selling rate in different parts of the country will be slightly different from each other at any given point of time. This is determined by taking the London spot price as the base rate, plus the import and customs duties, domestic transportation costs, one per cent margin, one per cent VAT for bullion dealers and one per cent fluctuation risk of the jeweller.
Upon this rate, a buyer will have to pay making charges or value addition costs varying from eight to 30 per cent, depending upon the intricacy of the craft on the jewellery. A plain machine-made bangle or a handmade bangle can invite the least making charge while branded jewellery will have the maximum making cost and are sometimes sold on a maximum retail price. At the time of purchase, one will have to pay one per cent VAT too.
Now, when you want to sell your jewellery, if it is hallmarked one you can exchange it for another piece of ornament with a reduction of two to three per cent from the prevailing selling rate. If it is non-hallmarked jewellery, the jeweller will gauge the purity and then fix the price accordingly.
Generally, most of the jewellers decline to pay cash for jewellery as theft gold also could be involved.
However, if it is a known customer, cash is paid after deducting four to five per cent from the selling price. In short, you pay eight to 30 per cent more on buying jewellery and while selling it for cash lose four to five per cent from the prevailing rate of gold.
Studded jewellery has the least resale value as one has to pay for the precious, semi-precious or synthetic stones while buying and when selling it off, the price of the stones are not calculated at all. Coins and bars nowadays there are several N avenues to buy gold coins and bars other than jewellery and bars other than jewellery stores. Banks, post offices and micro finance institutions also sell gold in these forms.
While buying coins and bars from jewellery stores, three to four per cent making charges have to be paid over the prevailing rate. Banks charge eight to 12 per cent making charges and post offices charge six to eight per cent. Besides, banks or post offices do not offer facility of buyback.
When you approach a jeweller to sell the coin or bar bought from his own store for exchange of jewellery, he may not charge you any additional charge whereas when you sell it for cash, he will charge three per cent as melting charges.
If the coin or bar were bought from elsewhere, the jeweller would deduct four to five per cent off the selling rate for cash.
Gold savings plan - Jewellers, post offices as well as J micro finance institutions are offering gold savings plan. Generally, the jewellers adopt the plan in which a specific amount is deposited with the jeweller at regular intervals. At the end of the tenure, jewellery or gold coin is given for the deposited amount based on the prevailing rate. Some jewellers also forego the making charges in such cases.
The savings plan launched by some of the micro finance institutions in collaboration with World Gold Council has a different scheme for the lower income groups. The MFI buys the specific quantity of gold and keeps it with itself. The buyer has to pay 15 per cent of the price upfront and the rest is paid as fixed instalments on a daily, weekly or monthly basis for a fixed tenure. This is considered as a loan and paid with 18 to 24 per cent annually calculated decreasing interest rate. The buyer can take the delivery of the coin at the end of the tenure or get cash as per the prevailing gold rate. Gold futures old futures is mostly G used by traders and speculators who want to hedge the risk on the commodity.
There are brokerage charges and other exchange levies accounting to about one per cent that have to be paid at the entry and exit of every contract. A margin amount of four to five per cent of the contract value is paid initially. The contract value is based on the prevailing futures rate.
According to the daily price variations, the difference in the prior agreed price is credited and debited from the account. If the margin amount goes beyond the desired level, it has to be replenished.
The least time needed to take delivery for futures contract is one month by paying the remaining amount of the contract value. The position can also be squared off at the end of the contract period. Futures trading involve gaining on the investment or carry the risk of losing as per the gold price movement. If the seller or buyer fails to make the delivery before the stipulated time, they have to pay a penalty, which can also go up to four per cent.
E-gold - Gold by National Spot Exchange E (NSEL) is a suitable product for the retail investor. The e-gold rate at the NSEL is determined by the daily average spot market prices in different cities of the country and by the buyer-seller interests at the exchange.
When one wants to buy an e-gold contract at the spot exchange rate, he has to pay five per cent of the total value upfront and the rest when the trade is done. The exchange charges Rs 10 for every Rs 1,00,000 turnover and there is an additional 0.2 or 0.3 per cent charge payable to the broker, which is generally negotiable. The delivery is made on a T+2 basis. One can also sell the e-gold after paying the same charges at the prevailing rate.
Usually, if one buys and sells on the exchange rate, the trade can be completed on the same day. But, if one quotes his own rate during the buy and sale, he will have to wait till there are buyers ready at the quoted price.
Gold ETFs - Old ETFs operate like mutual G funds with gold as an underlying asset. The brokerage charges are similar to that of e-gold. There is an additional one to two per cent annual expense charge. The landed rate at the ETF counter is arrived at based on the London bullion market rate, converting it to Indian rupee and adding charges like octroi and VAT.
Some of the gold ETFs hold gold as well as liquid instruments and so may not exactly reflect the gold price appreciation. While selling gold ETFs also one has to pay the brokerage charges and the transaction usually closes in a T+2 cycle.
The seller does not usually face the problem of absence of a buyer.
-----------------------------------------------------------------
Also, know how to buy mutual funds online:
Invest in DSP BlackRock Mutual Funds Online
Invest in Reliance Mutual Funds Online
Invest in HDFC Mutual Funds Online
Invest in Sundaram Mutual Funds Online
Invest in Birla Sunlife Mutual Funds Online
Invest in UTI Mutual Funds Online
Invest in SBI Mutual Funds Online
Invest in Edelweiss Mutual Funds Online
Invest in IDFC Mutual Funds Online
