blog

Smart Gold Investment

* How to Invest in Gold in India?

Let us discuss in detail how to buy gold in India for investment purposes.

* How to Buy or Invest in Gold Online

Whether you prefer physical gold or digital investments, this article will provide valuable tips for successfully navigating the online gold market. Make informed decisions and explore the potential of investing in this timeless and valuable asset. For long Gold has been considered as a valuable asset and a safe haven for investors. In today's digital age, the convenience of buying and investing in gold online has become increasingly popular. You can invest in the precious yellow metal in several ways online.

* Gold as an investment option

Before proceeding further let us answer a basic question in our mind. Why to invest in gold? Should I invest in gold? Is gold a good investment option?

It is your hard-earned money. So you need to answer these questions before investing in gold. Why do people invest in Gold? What are all the benefits of investing in gold?

There are 2 primary reasons why you need to invest in gold.

  • Investing money in gold is worth it because it is a hedge against inflation. Over a period of time, the return on gold investment is in line with the rate of inflation.

  • It is worth investing in gold for one more very valid reason. That is gold is negatively correlated to equity investments. Say for example 2007 onwards, the equity markets started performing poorly whereas the gold has performed well. So having gold as an investment option in your portfolio mix will help you reduce the overall volatility of your portfolio.

The above 2 points could have given some answers to your question “Is buying gold a good investment?”

   Return on Gold investment

* Is it profitable to invest in Gold?

This investment proved remarkable from 2006 to 2011. During that time span, Gold has given an average return of 29% per annum which was any day better than other investment options.

However, the long-term average return on gold investment is less than 10% p.a.

As one can say technically or ironically but history always repeats itself. Therefore, we may once again observe a similarly less than 10% appreciation pattern in gold prices in the near future.

Still, if you want to invest in Gold in India and cannot resist the temptation then these are a few tips on how to invest in gold correctly!

1) Jewellery buying

Our age-old and traditional way of investment is jewelry buying where one can buy gold ornaments, bars, or coins. However, it has its own disadvantages, total buying cost involves heavy making charges (it can be 10 to 20% of total cost). However, when you try to sell the same piece to the same jeweler, he will buy it below market rates and deduct those making charges from the total price of your jewel.

Taxability of Gold Jewels

As per the Indian Income Tax norms, you will be incurred with two taxes while you buy physical Gold. GST on the value of Gold and GST on making the charge.

  • If the jeweler does NOT bill separately for Gold and make a charge, then you have to pay 3% GST for the (billed amount) value of Gold.
  • If the jeweler bills separately for Gold and makes a charge, then you have to pay 3% GST for the value of Gold and 5% GST for making a charge. The GST, while you sell physical Gold is calculated based on the holding period. Since Gold is considered as a Capital Asset, it is accountable to Capital Gain tax.
  • If the holding period is less than 3 yrs, Short Term Capital Gains are taxed as per your income tax slab.
  • If the holding period is more than 3 yrs, Long Term Capital Gains are taxed at 20% with indexation benefits.

2) Investment in Gold coins and Bars

Investment in gold coins and bars is also a better option over jewel buying. You need to decide on ‘Where to buy gold coins or bars?”. You should buy gold bars and coins only from a jeweler. However, Banks also sell gold coins or bars. Then why do we advocate buying gold bars and coins from jewelers? To answer this question you ask yourself “How to sell gold coins or bars in India?” or “Where to sell gold coins in India?”

Banks sell gold coins and bars, but don’t buy gold coins from the bank, because they cannot buy it back. Whereas, the jewelers can buy back the gold coins from you.

How to Invest in Physical Gold in India? Points 1) and 2) could have proved that it is better to invest in physical gold by way of gold coins or bars sold by jewelers in India. In the next points 3) and 4) we will discuss about the paper gold investment options in India.

Taxability of Gold Coins

The taxation while buying and selling Gold coins and bars is the same as that of Gold jewelry. The only advantage of buying Gold coins is that it incurs no or least making charges. This reduces the taxation on making charges.

3) Gold ETF

  • Gold ETFs, or Gold Exchange Traded Funds, allow you to invest in gold without physically owning the metal. They are like mutual funds but traded on stock exchanges like individual stocks. Gold ETFs allow you to gain exposure to the price movements of gold without the need for buying, storing, and managing physical gold.
  • Here are some key features and characteristics of Gold ETFs:
  • Backed by Physical Gold: Gold ETFs are backed by physical gold holdings. The fund manager purchases and holds gold bullion or other approved forms of gold, such as bars or coins, as the underlying asset for the ETF.
  • Tradable on Stock Exchanges: Gold ETFs trade on stock exchanges, allowing you to buy or sell units of the fund throughout the trading day, just like any other stock. They have ticker symbols and can be purchased or sold through brokerage accounts.
  • Fractional Ownership: Gold ETFs offer the flexibility to buy and sell gold in smaller denominations. Each unit of the ETF represents a fraction of an ounce of gold. This makes it accessible to investors who may not have the means to purchase large quantities of physical gold.
  • Cost Efficiency: Gold ETFs generally have lower expense ratios than actively managed funds. This is because the management of the ETF is typically passive, aiming to replicate the performance of the gold market rather than actively selecting individual assets.
  • Liquidity: Gold ETFs are highly liquid investments due to their listing on stock exchanges. You can purchase or sell units of the ETF at prevailing market prices throughout the trading day. This provides flexibility and the ability to convert investments into cash if needed quickly.
  • Convenience and Storage: Unlike physical gold, Gold ETFs eliminate the need for storage, insurance, and security concerns. Investors can buy or sell units electronically, eliminating the logistical challenges associated with physical gold ownership.

Taxability of Gold ETF

There is no GST when you buy Gold ETF. The STCG and LTCG taxation while buying and selling Gold ETF is the same as that of Gold jewelry.

4) Gold Fund of Funds

What is the Gold Fund in India? The gold fund is a Fund of funds that will invest in Gold ETFs on behalf of you. The best part here is that you do not require holding any Demat a/c here.

Then how to invest in Gold Mutual Funds? Just like investing in other mutual fund schemes. As this is like any other mutual fund scheme, SIP investment in gold is possible through these gold funds.