With Akshaya Tritiya just around the corner, individuals must be looking at buying or investing in gold. Historically, huge buying has been witnessed during this time as Akshay Tritiya is considered an auspicious day to buy gold.
According to Nish Bhatt, Founder & CEO, Millwood Kane International, currently gold is trading near 18 percent off its peak price witnessed in August 2020. Recent strengthening in the USD, the second wave of COVID-19 cases are pushing gold prices high. The uncertainty created by the second wave may keep gold prices elevated in the short to medium term.
Here are the key things to know before investing in gold:
How much gold should one have in portfolio?
Having gold in a portfolio is desirable as it provides a hedge against inflation.
According to Bhatt of Millwood Kane International, investors should have gold in their portfolio in the range of 5-15 percent depending on their risk appetite.
How should one buy?
As per Bhatt, investors looking to take exposure in gold should prefer the digital route. Investment in physical gold comes with an added cost of storage.
"Exchange Traded Funds (ETFs), Sovereign Gold Fund (SGB) is more preferable over buying physical gold. While Gold ETFs provide easy liquidity as investors can buy and sell as per their convenience, SGB comes with an interest-bearing coupon for the holding in gold," Bhatt explains.
How is gold investment taxed?
The taxation of gold investments depends on the period of holding by a taxpayer. Investment in physical form is taxable like any other capital asset.
According to Gopal Bohra, partner, NA Shah Associates, if gold is held for more than 3 years, it is taxable as long term capital gain (LTCG) at 20 percent (exclusive of education cess and surcharge) and short term capital gain is taxable at normal tax slab applicable to the investor.
Indexation benefit is available while computing long-term capital gain.
Gold ETFs/gold MFs are also taxable like physical gold.
SGBs, on the other hand, earn interest at 2.5 percent on initial investment and have a maturity period of 8 years with an option to exit from the fifth year onwards. The interest earned is taxed as income from other sources.
In case the bonds are held to maturity, the capital gains are tax-exempt.
However, capital gains are payable on the transfer of SGB like transfer of physical gold or ETF or Gold MF. When sold before maturity, the gains are long-term capital gains and taxable at 20 percent (plus education cess and surcharge).
What should people check before buying physical gold?
While buying physical gold, it's important to know the purity and making charges.
According to Bankbazaar, the purity of gold is denoted in karats, with 24 karat gold being 99.9 percent pure and 22 karat gold being 92 percent pure.
"Every karat gold is equivalent to 4.2 percent pure gold, which in essence means that 14 and 18 karat contains only 58.33 percent and 75 percent pure gold respectively. 24 karat gold is not suited to make jewellery, which is why jewellers use either 14, 18 or 22 karat gold," Bankbazaar explains.
A making charge, meanwhile, is associated with every piece of gold jewellery, which is essentially the labour charge involved in creating it. These are a reflection of current gold rates.
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