CHENNAI: With the festive and wedding season around the corner, Indian families are likely to buy gold jewellery. The gold consumption patterns in the country are shifting with the younger generation’s preferences and increased access to the financial markets through digital channels.
Nevertheless, gold is considered as a safe haven in the time of market uncertainty and a hedge against inflation. It is inversely linked to the stock markets. Depending on your financial goals, gold can help you to diversify your portfolio mix. Here is your complete guide to different forms of gold, factors to consider and where to buy the precious yellow metal.
Your gold-buying options
Traditionally gold is bought in physical forms – jewellery, gold coins, etc -- but there are a lot of forms in which you can buy gold. Your options out there include bullion coins and bars, which is familiar with a few and digital gold, gold ETFs and sovereign gold bonds, arguably lesser known among retail investors. One should consider their investment time horizon, risk appetite to meet the financial goals.
Jewellery
The age-old jewellery needs no introduction for Indians. However, it is important to note key factors like quality and safety, tax rates and other charges. Always check for the BIS hallmark and whether it is 22 karat gold. Karat refers to the purity of gold and 22 karat means it is 91.6% pure gold, which is used to make jewellery. This determines the resale value of jewellery.
Ask for details of /break up maker’s charges and negotiate with the retailers. Jewellery, which serves both as an ornament and investment for many, especially in the lower and middle income households, attracts maker’s charges, wastage of gold, and GST charges. There is no rebate for taxes when you sell. Traditionally, people buy gold from trusted neighbourhood jewellers, but of late, big jewellery retailers with pan India presence are gaining ground and preference over smaller retailers. Jewellery can also be bought through online stores and comes with safety and security features such as being packed under video camera and damage-proofed.
Gold bars & Coins
Bullion bars and coins can be bought in different denominations and are generally considered alternatives. They attract around 5% making charges along with GST but have lower markup. It could be helpful if you plan to sell or make jewellery at a later date. Gold bars and coins with engravings can be purchased from jewellery retailer, public sector trading body MMTA or through banks.
Gold ETFs
Gold ETFs provide investors with a low-cost option to invest in gold-backed assets and like an open-ended mutual fund scheme which invests in gold. You don’t need to pay GST unlike physical commodities. It can help you to diversify your portfolio without buying physical gold. Some argue, with ETFs, investors can realise the returns better compared to the commodity itself. Gold ETFs are easy to enter and exit. However, retail investors should keep in mind the fact that long-term gold ETF investment attracts higher capital gains taxes but exiting in the short term may incur losses due to drop in prices because of market conditions. Stock brokers, new-age discounted brokerages and banks offer gold ETF trading and investors can choose from various gold ETF products in the market.
Sovereign gold bonds (SGBs)
Sovereign gold bonds are government securities issued by the Reserve Bank of India on behalf of the Government of India. You can eliminate storage risks, and in some cases cost of storage. They are free from issues such as making charges and purity.
SGB has tenors of eight years in which one will receive 2.5% interest per annum (paid half yearly as 1.25%). If you hold the gold bond till the maturity, then no capital gain tax will be levied, except for tax on 2.5% interest. SGB are denominated in grams of gold and minimum permissible investment is 1 gram of gold and maximum limit is 4 kg for individuals.
Sovereign gold bonds can be bought online from internet banking at SBI, HDFC, PNB, Canara Bank and ICICI Bank. It can also be bought from commercial banks, SHCIL, post offices designated by the RBI, and recognised stock exchanges.
