IN TINY DOSES
Gold has time and again proven itself to be a safe haven. It makes sense to make it a part of the portfolio in spite of notso-great returns
Indians love gold. The country is the world’s second-biggest buyer of the yellow metal and consumes 800-900 tonnes of it annually, as per the World Gold Council. But does it make sense to make gold part of your portfolio?
ALL THAT GLITTERS?
More than a crucial investment avenue, gold should be looked at as a tool to spread risk and diversify. It is a safe haven during economic volatility, especially during phases of high inflation. Experts suggest an exposure of 5-10 per cent. Balwant Jain, an independent tax and investment expert, says, “While one should hold around 5 per cent in gold at any time, currently we are recommending investors to park 10 per cent in the metal,” says Jain.
MIDAS TOUCH WOES
Investment in physical gold has risks such as purity issues, chances of theft, price differential and even making charges. There are also storage, locker and insurance costs. If opting for it regardless, keep the following in mind:
Go for hallmarked jewellery and coins Cross-check non-hallmarked pieces at Caratometers
Check prices on www. gjf.in before heading to the store. Note that “selling rate” is the selling price for the jeweller and “buying rate” is the rate at which the jeweller will buy from you Preserve invoices Rough cut bars called lagdis are available at a discount compared to minted, embossed bars
VIRTUAL GOLD CHECK
Paper gold outweighs physical gold in benefits. There are no purity and storage issues, it cannot be stolen, the prices are transparent. You can save on the mark-up of 2-15 per cent jewellers charge on physical gold. They come in three forms. Gold ETFs, or gold units held in demat form, each unit representing a gram of 24K gold. Then there are Gold Savings Funds, which basically invest in gold ETFs. The government introduced Sovereign Gold Bonds, which offer an additional interest of 2.5 per cent per annum on units, to reduce gold import and its impact on the rupee.
TAX IMPLICATIONS
The tax implications differ based on the mode of investing. Physical gold attracts GST and capital gains tax, gains from gold ETFs are subject to long-term capital gains tax of 20 per cent. Indexation (inflation adjustment) benefit is allowed if held for three years or more. GST does not apply on gold held in electronic form.
Capital gains from selling SGBs have been exempted from tax if held till maturity. However, the interest on gold bonds is taxable. When bonds are transferred and capital gains tax arises, indexation benefits are provided.
So what should it be, gold bonds or gold ETFs? While gold ETFs and Gold Savings Schemes are available throughout the year, SGBs are issued during specific periods by the government. Also, SGBs come with a five-year lock-in.
—Khyati Dharamsi is a
freelance writer