Want to Buy Gold? Here Are The Smart Ways For Investing
Here is a comparative analysis of various options available.
Physical Gold
You can buy gold coins or bars from banks and jewellers. Banks sell 24 carat gold with 99.99 purity. However, banks charge a premium for the purity. “If you consider buying gold from a bank, it is likely that you will end up paying 5-7 per cent more as compared to the market cost,” says Anil Rego, CEO & Founder, Right Horizons.
Jewellers may offer gold at lower prices but customers should always check for its purity. Also, in case of physical gold, if you avail locker facility for the safe storage of gold, you will have to pay additional locker charges.
Tax treatment: Short-term capital gains (if sold before three years) in case of physical gold are added to the income of the individual and taxed as per slab. Long-term capital gains are taxed at 20 per cent post indexation. By indexation, you adjust the purchasing price with annual inflation, thus reducing the tax outflow.
Gold ETFs And Gold Mutual Funds
Both gold mutual funds and gold exchange traded funds are offered by fund houses. Gold ETFs are listed on stock exchange and can be bought and sold just like shares. Gold mutual funds on the other hand invest in gold ETFs. These were introduced by fund houses to allow investors to invest through systematic investment plan (SIPs) in gold.
However, both gold ETFs and gold mutual funds are slightly expensive mode of investing in gold as fund houses charge expense ratio (fees for managing the funds). Gold ETFs charge an expense ratio of around 1 per cent while gold funds charge around 0.50 per cent, apart from the expense ratio of gold ETFs in which they invest.
The taxation of both gold ETF and gold funds is the same as physical gold. Short-term capital gains (if sold before three years) are added to the income of the individual and taxed as per slab. Long-term capital gains are taxed at 20 per cent post indexation. By indexation, you adjust the purchasing price with annual inflation, thus reducing the tax outflow.
Gold Bond Schemes
These gold-denominated bonds are issued by the Reserve Bank of India (RBI) and their price is linked to gold prices. Also, these bonds offer an interest at the rate of 2.75 per cent per annum to the investor.
Gold bonds have maturity of eight years, with an exit option from the fifth year. The bonds will be tradable on stock exchanges, thus offering investor an earlier exit option.
In this year’s Budget, the government has exempted the capital gains on redemption (sale on maturity) of gold bonds from income tax.
Also, 20 per cent tax on long-term capital gains (on sale after three years) can also be adjusted for indexation benefits, thus bringing down effective tax outflow.
Experts say that the changes make the bonds a more attractive investment avenue. “Apart from earning capital gains benefits on the investment, the investor will also benefit from the interest income which cannot be availed in case of physical gold holdings,” says Mr Rego of Right Horizons.
The Budget has also added some sheen to the gold monetisation scheme in which a person can deposit physical gold and earn interest. The depositor has the option to either take principal on maturity and interest in gold or equivalent rupee terms. Investors can also earn an interest at the rate of 2.25 per cent on medium-term deposits and 2.50 per cent on long-term deposits. Both the interest income and capital gains on gold monetization schemes will be exempt from tax, according to this year’s Budget proposals.
