Investing in Gold in India: A Comprehensive Guide
In the ever-evolving financial landscape, gold remains a popular investment option in India due to its historical significance, cultural importance, and the promise of security. This article delves into the various types of gold investments available in India, helping individuals make informed decisions based on their investment goals and risk tolerance.
Introduction to Gold Investments in India
Traditionally, women in India invest in gold for weddings, auspicious occasions, and as a hedge against financial uncertainty. With the global economy's unpredictable nature, diversifying investments with gold has become increasingly relevant. In this article, we will explore the different ways to invest in gold in India, including physical gold, digital gold, gold exchange-traded funds (ETFs), gold mutual funds, and sovereign gold bonds.
Physical Gold
Description: Physical gold can be in the form of jewellery, bars, or gold biscuits. It is a tangible asset that can be held and passed down as a family heirloom.
First Issued: 550 BC
Monitored By: Indian Bullion Jewellers Association
Minimum Investment: 0.5–1 gram
Source of Returns: Profit from fluctuating gold prices
GST and Other Charges: GST of 3% and making charges can decrease the rate of returns
Purity: Purity varies among different sellers
Risks Involved: Security and storage concerns
Expense Ratio and Exit Load: Nil
Liquidity: High - can be sold easily if needed
Return (Last 5 Years): 40% excluding any charges
Tenure: You can hold it for any time you wish
Taxation: Long-term capital gains (LTCG) tax is applied if kept above 3 years. If sold in less than 3 years, you will be taxed according to your current tax slab
How to Buy: Jewelry shops, dealers, banks
Digital Gold
Description: Digital gold allows investors to own gold without physically possessing it. It is stored in digital accounts.
First Issued: 2017 in India
Monitored By: MMTC-PAMP
Minimum Investment: 1 gram
Source of Returns: Profit from fluctuating gold prices
GST and Other Charges: GST of 3% will decrease overall returns
Purity: Highest purity
Risks Involved: Fluctuating gold prices
Expense Ratio and Exit Load: Nil
Liquidity: High - can be sold easily if needed
Return (Last 5 Years): 40%
Tenure: 5–7 years
Taxation: Long-term capital gains (LTCG) tax is applied if kept above 3 years. If sold in less than 3 years, you will be taxed according to your current tax slab
How to Buy: PayTM, PhonePe, GooglePay, etc.
Gold Exchange-Traded Funds (ETFs)
Description: Gold ETFs are simple investment products that combine the flexibility of stock investment and the security of gold investments. They can be bought and sold on stock exchanges.
First Issued: 2007 in India
Monitored By: Fund Manager in an AMC (Asset Management Company)
Minimum Investment: 1 gram
Source of Returns: Returns from the pool of investor funds parked in different schemes like Physical Gold, Gold Extraction Companies, Sovereign Gold Bonds, etc.
GST and Other Charges: No GST or brokerage charges (e.g., Zerodha/Upstox). A Demat account is required.
Purity: Not applicable
Risks Involved: Fluctuation in gold prices and market risks
Expense Ratio: 0.5-1%, charged by the Fund Manager
Exit Load: Nil
Liquidity: Moderate
Return (Last 5 Years): 40% excluding any charges
Tenure: You can hold for any time you wish
Taxation: Long-term capital gains (LTCG) tax is applied if kept above 3 years. If sold in less than 3 years, you will be taxed according to your current tax slab
How to Buy: From Demat accounts like Zerodha, Upstox, Sharekhan, etc.
Gold Mutual Funds
Description: Gold Mutual Funds invest in gold reserves, stocks of gold-producing and distributing syndicates, and gold ETFs.
First Issued: 2002 in India
Monitored By: Fund Manager in an AMC (Asset Management Company)
Minimum Investment: 500 (in INR)
Source of Returns: Returns from the pool of investor funds parked in different Gold ETFs.
GST and Other Charges: Nil
Purity: Not applicable
Risks Involved: Fluctuation in gold prices and market risks
Expense Ratio: 0.5-1%, charged by the Fund Manager, plus ETF charges
Exit Load: 1-2% if exited before 1 year
Liquidity: High - can be sold easily if needed
Return (Last 5 Years): 40% excluding any charges
Tenure: You can hold for any time you wish
Taxation: Long-term capital gains (LTCG) tax is applied if kept above 3 years. If sold in less than 3 years, you will be taxed according to your current tax slab
How to Buy: Groww, Zerodha, Upstox, etc.
Sovereign Gold Bonds (SGBs)
Description: SGBs are backed by the Central Government and are a substitute for holding physical gold. They provide a 2.5% extra interest rate per year.
First Issued: 2015 in India
Monitored By: Reserve Bank of India (RBI)
Minimum Investment: 1 gram
Source of Returns: Returns from the pool of investor funds used to fund different government projects.
GST and Other Charges: No GST or brokerage charges (e.g., Zerodha/Upstox). A Demat account is required.
Purity: Not applicable
Risks Involved: Fluctuation in gold prices
Expense Ratio and Exit Load: Nil
Liquidity: Moderate
Positive Point: In SGBs, you get a 2.5% extra interest annually. Additionally, if you hold the bond till maturity, there are tax benefits available.
Return (Last 5 Years): (40 2.5) 52.5%
Tenure: 8 years (maturity) and can exit after 5 years
Taxation: Any extra interest of 2.5% obtained is taxed. However, if you hold till maturity, you do not need to pay capital tax
How to Buy: Through PO, banks, and Demat accounts like Zerodha, Upstox, Sharekhan, etc.
Conclusion
Today, physical gold may not be the most appreciable form of investment. It is crucial to evaluate your financial goals and risk tolerance to determine the form of gold investment that suits you best. Whether you choose physical gold, digital gold, gold ETFs, gold mutual funds, or sovereign gold bonds, make informed decisions to optimize your returns.
In the future, the traditional exchange of physical gold in ring ceremonies may transition to the exchange of digital gold accounts. As always, seek professional advice to maximize your investment potential.
Key Takeaways:
Become familiar with the different types of gold investments available in India. Understand the returns, risks, and taxation implications of each investment option. Choose the investment that aligns with your financial goals and risk tolerance.For further insights and additional information, consult official reports from the Reserve Bank of India (RBI) and the National Securities Market Exchange (NSE).