Gold Investment

Gold investment is a good hedge against inflation and currency devaluation. 5-15% of your total investment should be in gold

How is gold price denoted in India ?

Gold prices indicated in India are for per 10 gms of gold. People make a common mistake of assuming one Tola being equal to 10 gms when it is actually equal to 11.34 gms.

How to invest in gold ?

1. Gold coins & Bars: If you are planning to buy physical gold for investment purposes, then gold coins and bars are a better option, as they have lower making charges of 2-5% and you get the highest quality of gold at 99.99% purity.

 

You can buy them both from jewelry stores and banks, but banks sell at a higher rate as compared to jewelry stores. Banks also do not buy the gold back when you want to sell it.

 

2. Jewelry: Buying jewelry comes with added charges like higher making charges, wastage charges, cost of stones in the jewelry and tax on these charges. These charges might add up to 30-40% of total jewelry cost. When you sell the jewelry you will not be able to recover this charges as the buyer might only pay for the value of gold after deducting the melting charges.

 

Jewelry is generally not made in 24K gold hence we end up buying gold of lower karat like 22K, 20K or 18K. Buying low karat (low purity) gold jewelry reduces your returns as the appreciation in value will be less than 24K gold.

 

Buy gold jewelry for self-use and not from an investment point of view.

 

 

From June 1, 2016, cash purchase of gold jewelry in excess of 5 lakh rupees will be subjected to 1% TCS (tax collection at source).

 

3. Gold ETF: You can buy gold in electronic form by buying gold ETF (exchange-traded fund) from the stock market. Gold ETF funds buy physical gold (99.5% purity) from London bullion market association accredited refiners and store them in secure vaults. One unit of gold ETF is generally equivalent to 1 gm of physical gold.

 

Gold ETF invest 90-100% in gold and 0-10% in debt funds. By buying gold ETF neither do you have to worry about the purity of gold, its storage, security, and insurance but also about selling it. Asset management companies (AMC) which manage the fund charge minimal fund management fee for their services.

 

To buy a gold ETF you require a Demat account. You can buy small quantities of gold online and store it in electronic format. You can sell the ETF units on the stock market and money is credited into your account. Certain AMC’s allow you to convert your units into physical gold on redemption, but minimum quantity is 1 Kg.

 

4. Gold saving funds: If you do not own Demat account then you can invest in gold saving funds, these funds, in turn, invest in gold ETF. Fund management expenses are higher in gold saving funds as compared to gold ETF. Gold saving funds give you the flexibility to invest through SIP mode, which is not available in gold ETF.

 

 

 

5. Sovereign Gold Bonds (SGB): You can invest in gold bonds issued by Reserve bank of India on the behalf of GOI. You can earn 2.5% annual interest plus the benefit of any appreciation in gold market price on your investment in SGB. Both your principal and interest of investment in Sovereign Gold Bonds is guaranteed by GOI.

 

Also Read : More About Sovereign Gold Bonds

 

Tax treatment on Gold Investment

Tax treatment is the same for physical gold or gold ETF/gold saving funds. Investment in gold will qualify as long-term capital gain if you hold for a minimum of 36 months. Long term capital gain in gold will be taxed at 20% with indexation benefit.

 

If you sell gold without holding it for 36 months or more, then the gains will be treated as short term capital gain. Short term capital gain on gold investment will be added to annual income of that financial year and taxed as per applicable tax slab.

How is purity of gold measured ?

Purity of gold is measured in karats. One karat(K) is equal to 1/24(4.1667%) part of pure gold by weight. It means 24K gold is pure gold by weight, while 12K contains approximately 50% gold by weight.

 

24K is relatively soft metal, so while making jewellery it is mixed with other metals like silver, nickel copper etc. If you buy 12K gold then it contains 50% gold and balance 50% is other metals.

 

Government of India has made it mandatory for all pure gold jewellery to be hallmarked as per BIS standards.

 

 BIS Hallmark on gold jewellery contains

  • BIS Mark

  • Fineness/Purity number (i.e 958 for 23 karat gold)

  • Hallmarking Centre's Mark,

  • Jeweller's identification Mark

  • Year of Marking denoted by a letter (e.g.  letter A is for year 2000,B is for 2001 and so on).

BIS Fineness/Purity number for different karats is listed below.