Dhanteras to Dhanteras gold prices up 20%. Buying jewellery, coin, ETF, or bond?2 min read . Updated: 25 Oct 2019, 12:16 PM IST
- Gold prices are up sharply since last Dhanteras
- Today investors have a plethora of options to take exposure to gold: ETFs, gold mutual funds, gold bonds, e-gold, coins and jewellery
Those who had bought gold on Dhanteras last year should be happy today. Gold prices in India are up about 20% from last year's Dhanteras. Global growth worries, monetary policy easing by central banks, trade spat between China and US and duty hike on imports have pushed gold prices up sharply. Many analysts remain positive on gold, saying gold prices are likely to remain supported on growth worries and central bank easing. On MCX, gold futures contracts are trading around ₹38,400 per 10 gram as compared to last year's Dhanteras level of around ₹32,000.
Gold jewellery and coins
You incur a lot of cost as making charges and when you sell it you forego that amount. Also, there is a storage cost if you keep it in bank locker. You can buy coins from jewellers or banks. Though there is no making charge, the sellers usually charge a markup to the market price.
Gold ETFs and mutual fund
Gold ETFs are passive investment instruments issued by mutual fund houses and are based on prevailing gold prices. When gold prices go up, your net asset value or NAV also goes up and vice-versa. They invest in physical gold and have much lower expenses as compared to physical gold investments.
Each ETF unit typically representing 1 gm of gold.
Gold ETFs have no lock-in period and you are free to sell anytime. There is an expense ratio of around 1%. "This makes it attractive for investors who want to invest for the short-term," says Ramalingam K, founder and CEO at Holistic Investment Planners.
There is no cost of storage and risk of theft. Mutual fund houses also offer gold funds which hold the units of gold ETFs. Investors buy units of gold mutual funds which in turn invest in units of gold ETFs. The expense fee is higher than gold ETFs. Investors can SIP into gold mutual funds in small denominations.
Sovereign Gold Bonds
The Reserve Bank of India on behalf of government of India comes up with sovereign gold bonds from time to time. The Sovereign Gold Bond Scheme 2019-20 - Series VI closes on October 25, giving another option for investors. The RBI has fixed the price of sovereign gold bonds at ₹3,835 per gram of gold. Investors who apply and make payment online get a small discount. The minimum investment is 1 gram. Gold bonds have a maturity of eight years. Sovereign gold bonds also offer an interest of 2.5%.
Some fintech companies offer options to buy and then sell gold online. You can buy gold in very low denominations.
Financial planners also suggest investors to keep an eye on taxability of gold in case you sell it. Income tax on gold on gold is dependent on the form it was purchased and how long the asset was held. If gold is being sold within three years from the date of purchase, then it is considered as short-term. Otherwise, it is considered as long term. In case of short-term capital gains, it is added to your gross total income and taxed accordingly. Long-terms gains on sale of gold taxed at 20.8% (including cess) with benefit of indexation.
If gold bonds are held till maturity, they are exempted from capital gains tax. This benefit is not available in other instruments like gold jewellery, coins, ETFs or funds.