Types of Gold Investment

Roshni Bhagtani

/

Types of Gold Investment you should consider

Why Gold Investment

It has long been a custom to buy Gold at rituals and festivals since our forefathers understood it was the safest Investment with the most growth potential. We Indians have a special attachment to Gold.

Gold is both a physical metal, which is tangible, and an intangible commodity that can be traded on various markets. When you buy Gold, you are buying it as an Investment, like physical Gold, shares, or bonds.

We tend to overlook the fact that Gold may be a good Investment, and there are more options than ever for Investing in Gold, which can not only provide returns but also diversify the portfolio.

You must have noticed whenever the stock market is on a bearish trend the Gold price is increasing. In the pandemic situation where the stock market crashed the Gold prices increased so the inverse relationship between Gold prices and the stock market has always been there. It can be utilized as a safety net in an emergency where you need money but stock prices aren't promising and you can't sell your stake.

Following are the types of Gold you can Invest in

Physical Gold

As we all know, Gold is traditionally available in tangible forms such as jewellery, watches, bullions, and coins, which account for 50% of the total usage. The drawback of real Gold is the 10 to 13% of making charges, 3% of GST, and the designing charges which make it pricey. It is also expensive to retain due to storage fees, making Gold harder to sell due to impurities added and the hassle of producing purity certifications. Not to forget the possibility of theft has always existed.

Digital Gold

As the name suggests digital Gold is purchased electronically through the reputed companies AUGMONT Gold, MMTC-PAMP INDIA, and SAFE Gold. Companies that sell digital Gold purchase from one of three companies. You buy Gold online and it is backed by physical Gold, which is how digital Gold works.

The most significant advantage of digital Gold is its safety and you can have physical delivery when you want to. We at Equiseed wealth provide 24k Digital Gold starting from the price as low as Re 1. You can also start a SIP plan.

The problem of storage cost and making charges is solved by digital Gold with no security hassle. It also can be purchased in smaller denominations. The GST is still applicable at 3%.

The challenge with digital Gold is that these three companies are unregulated; they are the most reputed, but unlike mutual funds, they are not regulated by the RBI or SEBI. The maximum period to Invest in digital Gold is 5-7 years, after which you must either order real Gold or sell digital Gold. Capital gains tax will be levied on profits made from the sale of digital Gold.

Gold ETF (exchange-traded fund)

Gold ETF is also backed by Gold just like digital Gold. It works just like any other ETF. For example, when you Invest in a Sensex ETF your money gets Invested in 30 Sensex companies proportionately.

When you Invest in Gold ETFs your money will be Invested in physical Gold, Gold mining companies, and 0-10% of the remaining amount in debt securities for maintaining liquidity. It is traded on the stock market so you can purchase a Gold ETF through your Demat account also.

Investment in Gold ETF is exempt from GST. There is no exit load in Gold ETF you can sell it off when you wish to. If you wish to acquire physical delivery of Gold, it is possible, but it must be a minimum of 1kg of Gold. If you want a tangible delivery, it can be a hefty Investment.

Let's discuss the drawbacks so in Gold ETF you cannot have monthly SIPs. Gold ETFs start with a minimum of 1 gram of Gold. The minimum Investment in Gold ETF is high compared to digital Gold and Gold mutual funds. Because the ETF is not yet popular in India, it can be difficult to find a buyer at times, but Gold ETF is more liquid than other ETFs on the market. Your money is being managed by an asset management firm and most companies charge an expense ratio of up to 1 percent.

If you sell your ETF before 3 years and make a short-term capital gain (STCG), the taxation will be determined by your tax bracket. Long-term capital gains (LTCG) are taxed at 20% + 4% cess when sold after three years, with the benefit of indexation.

Gold mutual funds

It is not backed by actual Gold, unlike digital Gold and ETFs. So the physical delivery of Gold is not possible. When you Invest in Gold mutual funds the fund manager directly Invests your money in Gold ETFs.

It can also be called as funds of funds. You can purchase Gold mutual funds without a Demat account using a mutual fund app. The benefit of Investing in Gold mutual funds is that you can start a monthly SIP with as little as Rs. 500. Investment in Gold mutual funds is exempt from GST.

The liquidity is higher than ETFs, and you can redeem at any moment, but there is usually a one-year lock-in period. So, if you existed before one year, you will face an exit load of up to 2%.

The expense ratio can be up to 1.5 percent. Physical delivery of Gold is impossible because it is not backed by Gold. If you sell your mutual fund and make a short-term capital gain (STCG), the taxation will be determined by your tax bracket. Long-term capital gains (LTCG) are taxed at 20% + 4% cess when sold after three years, with the benefit of indexation the same as Gold ETFs.

Sovereign Gold bonds (SGB)

The meaning of sovereign is the ruler; in this case, the sovereign is the government; it is issued on behalf of the government of India by the RBI. As a Gold bond or debt instrument, the annual interest rate is 2.5 percent at a simple interest rate of return on Investment which is taxable.

The minimum amount of Investment is the price of one gram of Gold which will be equivalent to one unit. The bond matures after 8 years, although the RBI offers an exit option after 5 years of holding. What if you want to sell your SGB before the five years are up? You can do so because it is tradable on the stock exchange.

The maximum amount of Investment that a person can make in a year is 4kg. Let's look at the taxation part. On Investing, you do not have to pay GST. If you sell your SGB after 8 years or after 5 years exit, you won't have to pay any capital gains tax on it. But what if you sold it on the stock exchange? It would be taxable, just like the other Gold Investments.

One of the most significant benefits that go unrecognized is that you can use SGB as collateral against your loan. We hope that this blog has been informative to you on your financial path. We at equiseed wealth have taken an oath to make our users’ financial journey simple.

Don't know how to grow your wealth with the right Investments and a well-diversified portfolio?

We have got you covered to get your finances right with our wealth plan where we focus on compounding for you.

Click here for your Customized Wealth Plan