Gold as an Investment

Gold as an Investment

Gold Prices had skyrocketed from Rs.937 in 1979 to approx. Rs.65330 in 2023(24 CT/10gms). You may wonder when we do some math on it. 

Rs.6533 - Rs.93 = 6440

Rs.6440/Rs.93 *100 = 6925 % of returns over the 45 years of investment.

There are two ways to Invest Gold in India: Physical and digital Gold (Gold Mutual Fund, Gold ETF & Sovereign Gold Bonds)

Physical Gold

Physical Gold is the Raw form of gold either in 22 or 24-ct variants. Can be done in the form of Jewelry, God Coins, and Gold Bars.

Digital Gold

Digital Gold investment includes investing in gold ETFs & gold mutual funds, gold bonds, and through online platforms. Each gold investing option has its own set of pros and cons as detailed below.

PHYSICAL GOLD
 DIGITAL GOLD
 
Raw gold, Coins, Bars,  Jewelry
  Electronic Form 
Storage & Security Issue
  Secured Digitally

Purchased through jewelers, banks, and online marketplaces
 Purchased on digital platforms, fund houses, and stock exchanges
 
Storage and insurance costs will incur
No storage and insurance cost
Provide security and tangibility sense
 
No such Feelings


Can be damaged, lost, or stolen

kept in a Demat account or online


Making charges are involved
Only Platform Fees will apply

Different Type Of Gold comparisons for Beginners

Karat
Gold percent
24 karats
99.99%
22 karats
91.6%
18 karats
75%
12 karats
50%
8 karats
33.3%

Investment Allocation For Gold 

I suggest allocating 10 to 15 percent of Gold as an Investment. There is no one-size-fits-all approach, and what may be appropriate for you may not be suitable for another person.

Investing in physical gold Studded with Gemstones

This type is not recommended for in the angle of Investment and can be used as daily wear. The following is the reason for non-recommendation.

  • Gems don’t appreciate in value like gold
  • Additional making charges range from 12% to 18%.
  • No value return of gems in the ornaments
  • Difficult to distinguish genuine gemstones 
  • Incurs higher costs due to involvement of the craftsmanship
  • Gemstones are not traded as much as gold or diamonds.
  • Gemstones may cleave and break into splinters during cleaning or polishing or can break the stone

How Much Physical Gold Can You Keep

Any amount of gold can be held with buying proof. Technically, there is no limit up to which you can own gold jewellery or ornaments in India.

Without,

Buying receipt  married woman can keep up to 500 grams of gold jewelry

Unmarried women can keep 250 grams

Men are only allowed to keep up to 100 grams (irrespective of their marital status)

Note – The above limits are not as per any specific law in India. But it is as per the instructions issued by The Central Board of Direct Taxes (CBDT) to its investigating officials at the time of the income tax raid. (*Source: Cashoverflow. in)

Investment in Gold Bonds

Sovereign Gold Bonds (SGBs) are issued by the Reserve Bank of India periodically. Sovereign Gold Bonds carry a 2.5% coupon interest rate. Sovereign Gold Bonds was introduced in 2015 with tax exemption on investment amount on maturity.

One unit of Sovereign Gold Bonds bond represents 1 gram of digital gold. You can invest in SGBs through designated banks, post offices, or online platforms. 

The price of the bond is based on the average closing price of gold in the previous week. Sovereign Gold Bonds have a fixed tenure of 8 years but offer the option to exit after the completion of the fifth year.

Sovereign Gold Bonds are traded on stock exchanges, providing an opportunity to exit before maturity. But they trade at a discount of 3% to 7% below the prevailing gold market rate, which is a drawback to consider. 

Pros of Sovereign Gold Bonds

Fixed interest rate of 2.5% annually 

Profit of price appreciation at the end of the 5-year lock-in period

Online trading options and tax benefits

Potential for interest earnings, gold price returns, and tax benefits

No transaction charges

SGBs can be used as collateral when taking loans.


Cons of Sovereign Gold Bonds

SGBs have a lock-in period of 5 years

No physical possession


Taxes on Sovereign Gold Bonds

Particulars
Time period
Taxes
Interest received
Anytime
Fully-taxable
SGB Redemption amount
If held till maturity
Exempted from taxes
SGB sold before 3 years
STCG
Normal tax rate
SGB sold after 3 years
LTCG
@20% with indexation benefits


Gold ETF

Gold Exchange-Traded Funds (ETFs) represent ownership of underlying physical gold. It tracks the price of gold where each unit of the ETF represents 1 gram of physical gold of 99.5% purity.

Gold Exchange-Traded Funds (ETFs) provide an alternative way to invest in gold. Suitable for individuals who have a Demat account. 

Compared to digital gold, gold ETFs offer better returns in the absence of transaction charges is a benefit. On the downside, gold ETFs may have associated management fees. 

Gold Mutual Fund

Gold Mutual Fund pools money from multiple investors to invest in various gold-related assets, like physical gold, gold ETFs, gold mining stocks, and gold derivatives. You don’t need a Demat account to keep your gold mutual fund.

Best Gold MF -India 2023

Gold Mutual Fund
5-Year Returns 
Invesco India Gold Fund
14.20%
Axis Gold Fund
13.99%
Kotak Gold Fund
13.79%
SBI Gold Fund
13.73%
HDFC Gold Fund
13.62%


 Start Your Regular Mutual Fund and Gold Mutual Fund Now

Steps to invest in gold in NJ E-Wealth Account

  1. Click here to open the Link above to open the NJ E-Wealth Account
  2. Complete KYC by providing PAN, Aadhar, and other details
  3. Log in to your NJ E-Wealth Account
  4. Search for gold ETFs or gold mutual funds available on the platform. 
  5. Buy a gold ETF or gold mutual fund by specifying the investment amount and completing the purchase transaction. 

Taxation on Gold in India

For tax purposes, 4 types of physical gold investment mentioned are treated the same. 

1. LTCG on Gold Investments

Profit from physical gold held in any mode for more than 36 months before selling is considered as a long-term capital gain (LTCG) at the rate of 20% with indexation benefits. 

LTCG = Sale consideration – Indexed cost of acquisition- Indexed cost of improvement (if any) – Expenses incurred exclusively for the sale of the Asset – Exemption u/s 54F if any availed.

Note – Section 54F of the IT Act allows tax exemption on gains from the sale of certain capital assets (other than a house property) such as stocks, bonds, and gold. 

Exemption is allowed if the sale proceeds are used to buy residential property only.

For instance you bought physical gold in 2010 for Rs. 5 lacs and sold it in 2023 for Rs. 17 lacs. You spent Rs. 5000 as sale expenses and haven’t availed any exemption under section 54F.

Then LTCG calculation is under 

Sale consideration = Rs. 17 lacs

Indexed cost of acquisition = 5 lacs x CII of 2023 / CII of2010

 = 5 lacs x 311 / 167 = Rs. 9.91 lacs

Check – Cost of inflation index (CII) of all the previous years

LTCG = 17 lacs – 9.91 lacs – 5000 = 7.04 lacs

If you invest all the LTCG in buying house property then you don’t have to pay any taxes. 

If you don’t invest in house property then you have to pay taxes @ 20% on 7.04 lacs gains. The taxes come to 7.04 x 0.20 = 1,40,800 before cess and charges.

2. STCG on Gold Investments

Profit from physical gold held for less than 36 months is considered a short-term capital gain (STCG). The tax rate is according to your current tax slab.

For example – you bought physical gold in October 2022 as an investment and sold at a profit of Rs. 2 Lacs in May 2023.

Physical gold acquisition cost = Rs. 10 lacs

Sale consideration = Rs. 12 lacs

Expenses incurred for gold sale = Rs. 5,000

Then your short-term capital gain = Sale Consideration – Cost of acquisition- Cost of improvement (if any) – Expenses incurred exclusively for the sale of physical gold.

STCG = 12 lacs – 10 lacs – 5,000 

= Rs. 1.95 lacs

Suppose you fall in the 30% tax bracket then you need to pay 1.95 lacs x 0.30 = Rs. 58,500 in tax before cess and surcharge (if any).

3. Taxation on Gold Received as Gifts

You do not need to pay any taxes when you receive gold as a gift from close relatives, such as parents, siblings or children. 

Taxes will be applicable if you receive gold from a non-relative if the value of the gold gift exceeds Rs. 50,000.

Note – Selling gold received as gifts will attract taxes as per STCG and LTCG norms.

4. Taxation on Gold You Inherit

If you inherit gold from a blood relative, you do not need to pay taxes. 

For other inheritances, you will have to pay taxes if the value of gold is above Rs. 50,000.

Here too, LTCG and STCG norms apply when selling the inherited gold. To determine the holding period, you need to consider the date of acquisition for the original owner of the gold items.

Also Read

Family-Budget

How-Inflation-Eat-Your-Savings

Elections-Economy-and-Equity


(*Source: Cashoverflow. in)