Buying gold on the day of Akshaya Tritiya is considered auspicious. So, this year bring home gold either in the form of gold ETF.
Traditionally, your only option when it comes to buying gold was in the physical form. But with the launch of Gold Mutual Funds (Gold Exchange Traded Funds or ETF), you can, now, buy gold in the demat form.
Ask two questions before you go shopping:
1. Should I invest in gold?
2. If yes, then which is better -- physical gold or gold ETF?
The answer to the second question is easier, so let's look at that, first.
If your shopping is purely for investment purposes, then Gold ETF scores over physical gold. Here's why.
1. Low cost: When you buy Gold ETF you have to pay only the brokerage charges, which is usually around 0.5 per cent vis-à-vis shelling out between 10 and 20 per cent as premium and/or making charges if you buy physical gold. To store physical gold, you may incur locker and insurance charges. For ETFs, you pay the annual fund management charges of approximately 0.5-1 per cent.
2. Transparency: For ETFs, the rates are pretty transparent as they are linked to international prices. But there's no consistency in gold prices across various jewellers or banks, even within the same city.
3. Purity: You need not be concerned about the purity of gold in the case of ETFs.
4. Security: No one can steal your Gold ETF units!
5. Capital Tax Gains: In case of physical gold, the long term capital gain tax becomes applicable only when the holding period exceeds three years. The limit is one year for Gold ETFs.
6. Wealth Tax: Physical gold attracts wealth tax whereas Gold ETF is exempt from wealth tax.
7. Convenience: Call up your broker and your job is done. You don’t need to visit the nearest jeweller with loads of cash.
Thus Gold ETFs offer a convenient, safe and hassle-free investment opportunity in gold, besides reduced expenses.
When buying physical gold, you next door jeweller is usually a better option because currently banks can only sell gold but not buy it back and the premium could also be higher.
Gold, a good investment?
The answer to this: yes and no!
The golden game is based on demand and supply. And it's not easy to predict the demand-supply scenario because of multiple factors (both national and international) affecting it.
But if you look at the past 15-20 years' record, it is seen that gold is a hedge against inflation. Over the last 20 years, the average return from gold has been around 7 per cent as against 16-17 per cent from equity.
So, if the past trend continues, you can expect around say 6-9 per cent returns from gold in the long-term. In the short-term the scenario can be pretty volatile. The gains and the losses can be high, depending on how short-term factors play out.
It could be said that you may invest a small portion of your corpus in gold as a means of portfolio diversification. But you should not expect high returns, especially the kind of returns you might have seen in the recent past. Equities and real estate would still be a better bet for wealth creation.
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