Gold Investment Benefits That Can Make You Richer – Good old gold in new bottles: where to invest? 7 minutes of reading. Updated: 05 Nov 2022 21:31 IST Sanchari Ghosh Premium
There is no single answer to the classic dilemma of whether to invest in gold or not. And if so, where to put the money.
Gold Investment Benefits That Can Make You Richer
If you are considering gold as an investment, you may find several options and it can be a difficult choice
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Gold is a complicated investment. Although it has been a favorite for generations, many today feel that the yellow metal may not be the best option for their portfolio. To add to the confusion, there are five investment options: government gold bonds, gold exchange-traded funds, gold mutual funds, physical gold, and digital gold. So there is no one-size-fits-all answer to the classic dilemma of whether to invest in gold or not. And if so, where to put the money Let’s dig deeper.
Chantil Eyre, a registered financial advisor at Sebi, points out that gold is a place to store money during times of recession and hyperinflation. In addition, it is a rare metal, so its prices increase over time. Therefore, a healthy amount of investment should go into gold to provide much needed stability to the overall portfolio.
Over the past five years, gold has returned around 11.7% annually (annualized), and over the past two years (2020 and 2021), it has reached a whopping 19% annually. But it should be noted that in 2020 the income was 38%, and in 2021 – only 0%. Gold is very volatile and often jumps up and down; In the long term there was one point where the return was -20%, while the highest was 82%. “Therefore, there is no way to predict how much profit this can generate in the coming years,” says Avinesh Lotaria, also a registered investment advisor at Sebi.
“There is no doubt that it satisfies everyone. There is a sovereign guarantee. So, even if gold prices shoot up, the Indian government and the RBI will have enough gold in reserve to meet the payments,” says Iyer.
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For the uninitiated, SGBs are not gold investments, but debt instruments linked to the price of gold. That is, the price of one unit of SBG per gram of gold (current price). At maturity, its value will be the average price of gold in the Indian market (published by the Jewelers Association of India) during the week. There is no guarantee that you will get the fund back. “However, in the long term, the price of gold tends to rise significantly,” says Iyer.
After that, if you hold it for 8 years (the full term), the gains from it are completely tax free. “And what acts as a sweetener,” Lothria comments, “is that you receive an interest rate of 2.5% per year on the bond.”
SGB’s main concern is that the product is highly illiquid. First, you can’t buy them anytime (in the primary market) but you have to wait for the RBI to release the bond, which happens only once in 2-3 months. Second, you have to hold it for 8 years to get the full the benefit.
Although they can be easily bought/sold on secondary markets, there are some drawbacks. On the one hand, if you sell it 8 years ago, you can sell it at a discounted price. And while your purchase may appear profitable in the secondary market because you are buying it at a discount, in reality you will still receive interest on the price the original investor bought for.
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They were considered extremely profitable until SBGs came along, Lotria said: “Now people might think why don’t they just get 2.5% p.a. interest on SGB instead of investing in Gold ETF/MF.” However, this thought does not make a gold ETF/MF any less attractive as their ease of buying/selling is a big win over SGB.
Illustrating how they work, Luthria says gold ETFs trade on the stock market like stocks and hold physical gold. Regarding gold funds, he explains: “ETFs and gold funds are more or less the same, they are simply structured differently.” Basically all the gold mutual funds simply invest in the same company’s gold ETFs. That is, Nippon Gold MF invests in Nippon Gold ETF and HDFC Gold MF invests in HDFC Gold ETF.
From the converter’s point of view, the difference is that for ETFs you need a Demat account and that too is a bit tricky to choose, whereas for Gold MFs you can get rid of those headaches for an additional small fee of 0.15% p.a. to the house of M.P.
Most financial planners advise against investing in physical gold. Lothria says, “The main reason for owning gold is a once-in-a-generation or bi-generational catastrophe, such as a civil war. These are very rare cases that may not happen in our lifetime.” Iyer says against this idea, “but it is very difficult to say in which generation it will be”.
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So, if you don’t want to be completely dependent on the government, there is nothing wrong with owning physical gold. However, Iyer warns, “It’s a dead investment if the value doesn’t go up (although that’s rare). There are other types of risks, like losing or having your bank robbed.”
Although some people prefer to buy gold jewelry, they should not make the mistake of seeing it as an investment. Even if it is, you should know that it is very inefficient because the jewelry is not pure gold and in addition there are costs that you will never get back if you sell it. There may also be losses due to wear and tear during use.
You can buy digital gold as low as INR 1 from the comfort of your home, says Sachin Kothari, Director, Augmont Gold for All, while talking about the benefits of digital gold.
He adds, “For SGB, you will have to wait for the RBI to release the bonds. And in terms of physical gold, you have to buy it at a certain value, you can’t buy it for NIS 100 or NIS 500.”
Good Old Gold In New Bottles: Where Should You Invest?
And then comes the familiar part. Kothari says, “Again, it’s easy to sell digital gold. SGB
Also, since the digital gold is backed by physical gold, you can even exchange it for the latter gold. “So this is an excellent investment option for those who are saving for jewelry, especially for a wedding.” However, the lottery emphasizes that “digital gold has no regulatory oversight,” making it a risky bet.
To solve this problem, a self-regulating system was created that customers can trust. Kothari points out that there is an independent monitoring agency that monitors and controls the movement of physical gold from these vaults. They also confirm the amount of physical gold regularly stored in the vault.
In conclusion, the demand for physical gold is huge compared to other forms of gold investment. This is mainly due to lack of awareness about SGBs, gold ETFs/MFs or digital gold. But with digitization, their demands are increasing among new-age investors, especially urban millennials.
Should I Buy Gold Coins Or A Gold Bar?
Considering the fact that it is the same type of assets, Iyer claims, “the question is not whether it is suitable for a certain investor, but how it should be spread over the portfolio. The holding percentage of these investments may change, but gold should still be part of the asset allocation.”
In less than 3 years it is taxable at normal income tax rates as per your IT plate
If the investor holds the bond for 8 years, the yield is completely tax-free
Long-term capital gains with a 20% tax apply for more than 3 years and the investor receives benefits linked to the index
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The 2.5% per cent you earn on your investment is taxed at the full corporate tax rate
Long-term capital gains with a 20% tax apply for more than 3 years and the investor receives an index index benefit
*Investors must self-report that they sold it after holding it for a certain period of time.
Sanchari Ghosh is the Deputy Chief Content Producer of. It covers news, human interest, epidemiology and personal finance stories
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