Ever since the government launched the revamped gold bonds and gold monetisation schemes, the options available to the investment community have increased. Seeking to curb gold imports, the government is taking all efforts to make the two schemes attractive for investors. But there is never a fit-for-all investment and so it’s wiser to know the pros and cons of each investment options. Here is a review of the various options available to invest in gold:
Physical Gold: This is probably the traditional and most utilised option for investing in gold. One can buy gold bar, coins or go for jewellery made from gold. However, there is a high cost involved in it since one has to store this physical gold and taxation also plays a big spoiler. Also, there will be price difference and trust factor when physical gold is bought through jewellers or banks with an objective to sell it later.
Gold ETFs: Also known as paper gold, this scheme has emerged as a popular investment for investing in gold. Unlike physical gold, Gold ETFs are cost effective and tax efficient. Bought like a stock on stock exchange Gold ETFs deliver the advantage of real time NAV and high liquidity within the day. However, one needs to maintain a demat and trading account and there are expenses within the fund which investor should be aware of.
Gold Funds: Mutual Fund companies run gold funds schemes. There are two categories — Fund of Funds which invest in Gold ETFs and, Gold Funds which invest in stocks of gold mining companies. Both the schemes have their own advantage but compared to ETFs the cost in these two schemes is higher.
E-Gold: This is the scheme run by National Spot Exchange Limited, where like ETF, you can buy gold through the stock exchange. However, it differs from ETFs in the increased trading hours, pricing, benefit of conversion of units to physical gold and taxation. The only caveat is that investors have to open a separate account on NSEL to invest in E-Gold.
Sovereign Gold Bonds: These gold bonds were launched by the government in 2014. Till now, these bonds have been introduced twice and the third is slated to be launched by the end of this month. These bonds provide investors an opportunity to earn interest along with appreciation in gold prices. Issued for 5 to 8 years, the Union Budget 2016-17 has made both capital gains and interest tax exempted, which surely increases the attractiveness of this scheme.
While investing in any of the options listed above, investors have to take note of three aspects — what charges they are paying, what is the volatility involved in gold prices and what is the real return they will make i.e. what taxation they will have to bear. So investing in gold does have a lot of options now but do your homework to choose the most appropriate one.
(The writer is founder of JS Financial Advisors)