Indians love gold. It would be
difficult to find a person who has never invested in gold. In deciding whether
to invest in Physical Gold or Gold ETFs one need to establish the purpose of
buying Gold, are we buying for personal consumption, buying for children’s
marriage or for investment?
Now if we are buying for personal consumption then it makes
sense to buy physical gold in form of jewellery. Gold bars and coins are also
another way of buying physical gold to gift someone or to make jewellery in
near future. But if we are buying for investment or for child’s marriage then
there is another option, which is gold EFT.
I. Gold ETF
Why to Invest in Gold ETF?
Gold ETF
are transparent vehicle and provide an effective and efficient platform for
small investors to diversify into GOLD. Gold ETFs have been rising in
popularity due to their convenience.
No worry on adulteration or impurities
They are
easy to trade, no need to store and no worries of theft.
Held in
Electronic Form
Can
track your investment values in real time
Extremely
Liquid
The
expenses incurred in buying and selling Gold ETF are much lower than the cost
incurred in buying, selling, storing and insuring physical gold.
How to Invest in Gold ETF?
To
Invest in Gold ETF, all you need to have a demat account, that would suffice to
invest in gold ETFs. Once you have got the account ready it’s just a matter of
choosing Gold ETF and place the order online from your broker’s trading portal.
The orders are routed to the exchange where the purchase order are matched with
the sell orders and executed. Gold ETFs are open-ended mutual fund schemes that
will invest the money collected from investors in standard gold bullion of 99.5
per cent purity. These funds are of open ended nature that trade on a stock
exchange just like the shares of an individual company. So investors can any
time buy and sell units of gold ETF. Instead of Physical Gold, by choosing gold ETFs,
accumulation of gold for long term is easy. It is safest way and there is no
question of purity.
II. E-Gold
What is E-Gold?
E-gold
is held electronically in the demat form and can be freely converted into
physical gold. In India, e-gold is offered by the National Spot Exchange
Limited (NSEL), which gives investors the option to invest in commodities such
as gold, silver and platinum online. Any investor can buy gold in small
quantities on the NSEL and sell it after making a profit. He also has the
option of taking physical delivery of the metal.
Which one to go for E-Gold or Gold ETF?
Conversion
to Physical Gold
E-gold
can be converted into physical gold for quantities as small as 8 gm, while gold
ETFs offer the option of physical delivery but only for a denomination of over
a kilogram. Accumulating such a huge amount of gold is not feasible for small
investors. Besides, the delivery centres of the National Spot Exchange are
located in 15 cities, while ETFs have only one delivery centre in Mumbai.
E-gold can also be directly converted into jewellery through select, reputed
jewellers that conform with the purity and transparency guidelines. The
investor only has to pay for the making charges. The National Spot Exchange
aims to bring all branded jewellers under its umbrella of empanelled jewellers
within a year.
Cost of
Investment
The
biggest advantage that investing in E-gold has over Gold ETF is that it
involves no management costs or other recurring expenses. So, the product is a
lot more cost-effective for people who have a long investment horizon.
Price
In gold
ETFs, investors track NAVs, which keep changing with gold prices. In e-gold,
investors directly track the price of gold.
Taxation
Gold
ETFs have an edge over e-gold here. For gold ETFs, one year is considered as the
long term; it is three years for e-gold. E-gold is treated like physical gold
and qualifies for long-term capital gains benefits if held for three years or
more. However, gold ETFs qualify for long-term capital gains treatment after
being held for just one year.
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