People may cherish possessing gold, in particular, jewellery, forgetting they pay for its making charges and GST.
Buying gold has been the traditional method of investing in India and is still one of the most sought-after investment plans for many. However, most investment experts argue that buying physical gold should not be considered as an investment.
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One can buy physical gold in the form of jewellery, coins and bars. People may cherish possessing gold, in particular, jewellery, forgetting they pay for its making charges and GST.
“These making charges are irrecoverable on resale,” say experts. Likewise, gold coins and bars come with processing charges, which are again irrecoverable.
"Traditionally, gold purchase is driven by sentiment, not logic or calculation. People buy gold for future emergencies as it offers quick liquidation. Statistically, such emergencies rarely occur and more often than not get resolved by other modes of investment which are easy and readily available," according to Tushar Bopche, Executive Vice President, YES SECURITIES.
Being a physical asset, the chances of it being lost or taken away by other means are much higher.
"It has a very high markup for support services. People pay taxes, they pay the jeweller and the designer, they pay the bank to store it, and other than the certified bullion, they sell the jewellery in less than the market rate," he adds.
Digital gold, on the other hand, offers a convenient transaction with a relatively lower cost of resale and greater liquidity as compared to the physical gold.
“The storage and security cost of a physical asset is higher as compared to digital gold, which makes the digital route a superior alternative. There is transparency in prices as it tracks current market gold prices and no concerns with regards to theft or storage,” explains Anurag Jhanwar, co-founder and partner, Fintrust Advisors LLP.
Owing digital gold is also easy, adds Prof. Arvind Sahay, chairperson, India Gold Policy Center, IIM-Ahmedabad.
'Digital Gold' allows investors to purchase gold coins, bars and jewellery online.
Patym Mobile Wallet, Gold Rush by the Stock Holding Corporation of India and Me-Gold of Motilal also give the option to take an exposure to physical gold through digital route.
Another option is to buy either Gold ETF or Sovereign Gold Bonds (SGB).
Gold ETFs are listed instruments whose market prices are linked to domestic gold prices.
"This can be bought over an exchange (BSE/NSE) with gold as the underlying asset. However, the expense ratio and broker cost must be accounted for before buying ETF," Jhanwar elaborates.
Gold ETFs attract a capital gains tax of 20 percent with indexation if sold after 36 months.
SGB, on the other hand, is a certificate scheme in which the RBI issues bonds on behalf of Government of India. It comprises government securities denominated in gold wherein investors are required to pay the issue price in cash. The bonds are redeemed in cash on maturity.
SGB on redemption is exempt from long-term capital gains tax.
CNBCTV18.com advises users to check with certified experts before taking any investment decisions.
First Published: Jul 25, 2020 10:24 AM IST
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