Everyone adores gold in any form whether it’s about investing in gold online or buying physical gold. Gold has always attracted eyeballs due to great demand from investors & other people. According to a research data, Indian households own around 16,000 tonnes of gold jewellery. This forms a market price value of Rs.27.2 lakh crores which is twice the amount of foreign exchange reserves possessed by the RBI.
Many people, especially investors are always looking for important things they should consider while investing in gold. In this article we present to you a complete guide for gold investment.
A complete guide for gold investment | Forms of buying gold
First thing which any investor needs to know are the various forms of investing in gold. They are as follows-
- Apparently, jewellery has been the most traditional way of buying gold. However, it cannot be considered as an investment option. This is because there are huge losses in wastage & making charges.
- Bank coins are also not looked upon as an investment option due to the high premium which banks demand for their coins. It can range from 5% to 10%. Also these bank coins possess low liquidity rate as the coins are not owned by the banks.
- Investing in bullion bars is a good way to invest in gold. However, the minimum investment amount is very high.
- Gold Exchange Traded Funds or Gold ETFs are the most popular gold investment options available. Gold ETF’s provide an easier & safer way to invest in gold. Also the charges are affordable & you can access gold electronically. However, one cannot view his holdings.
A complete guide for gold investment | Not a source of income
You cannot rely on gold as a source of current income. However, you can receive dividends from gold ETFs. In terms of physical form, you don’t get any income rather there is outflow of money for the maintenance charge of gold lockers.
A complete guide for gold investment | Perfect hedge against inflation
Gold is considered as a perfect hedge against inflation. However, in regards to absolute returns, gold displayed returns of only 0.8% above inflation. When you compare this with returns from real estate & shares, they beat gold in terms of capital appreciation. Real estate & shares displayed returns of about 11% over inflation since 1979 when Sensex was launched.
However, gold is a good option when you consider it from a short term point of view compared to the share market which is highly volatile. It is advisable to allocate up to 5% of your overall investment portfolio for gold investments.
A complete guide for gold investment | No major risk factors
We hardly observe a case of deflation in India. Therefore, there are no major risk factors associated with gold. Last year official figures showed negative inflation (deflation). However, the actual costs of food products were on the rise. Gold prices also reflected the same trend.
A complete guide for gold investment | High Liquidity
In regards to liquidity, gold offers high liquidity. It grabs the highest points for liquidity when you compare it with all other investment options. You can convert gold to cash at any point of time.
When you go to a gold jeweler, he would exchange your accessories of gold for other gold items. However, the major drawback here is that you will have to pay the making & wastage charges. This degrades the value of gold jewels up to 10-35%.
A complete guide for gold investment | How to reduce tax liabilities?
It is mandatory to pay capital gains tax in terms of gold according to the IT Act. Therefore, always ask the jeweler for the bill when you purchase any gold item. It is surprising that around 90% of gold jewellery transactions in India are unbilled. This forms a serious concern for gold investors. You can take advantage of the indexation benefits on capital gains of gold. This will help you to reduce your tax liabilities.
Hence, now you are aware about the various forms of investing in gold & things you should take care of to achieve maximum benefits from gold.