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There are 7 ways to invest in gold. Which one suits you? Have a look.

For a better reading experience, read in horizontal mode. 

Parameters

Sovereign Gold Bond

Physical Gold

PayTM Gold/ HDFC Safe Gold

Gold ETF

Gold Mutual Fund

Multi-Asset Mutual Fund

Investment Limit

Min 1 gram;

Max 4 kg in a year for an individual

No limit

No limit

Min 1 gram

Min INR 1000

Min INR 1000

Asset

Gold

Gold

Gold

Gold

Gold

Equity + Debt + Gold

Returns

Higher due to interest

As per gold price

As per gold price

As per gold price

As per gold price

As per equity, debt, and gold value

Interest on investment

2.5% per annum

Nil

Nil

Nil

Nil

Nil

GST on Purchase

Nil

3% applicable

3% applicable

Nil

Nil

Nil

Tax Collected at Source

(TCS) on Purchase

Nil

1% over 2 lakh

1% over 2 lakh

Nil

Nil

Nil

Income tax

Long Term Capital Gain exempt; interest taxable

Long Term Capital Gain after 3 years

Long Term Capital Gain after 3 years

Long Term Capital Gain after 3 years

Long Term Capital Gain after 3 years

Long Term Capital Gain after 3 years

Gold purity

Highest

Concern

Highest

Highest

Highest

Highest

Efforts involved in yearly maintenance (locker visit, review statements)

Nil

High

(visit to locker) Rent varies from bank to bank and size

Nil

Nil

Nil

Nil

Yearly Storage Cost

Negligible

High

(due to locker rent)

Negligible

Negligible

Negligible

Negligible

Investment horizon

Minimum of 5 years Maximum 8 years

No limit

No limit

No limit

No limit

No limit

Liquidity - Can it be

sold anytime 24*7?

After 5 years of original purchase

Conditional

Yes

Yes

Yes

Yes

Liquidity after succession (after death)

After 5 years of original purchase

Conditional

Yes

Yes

Yes

Yes

Can it be used as collateral for a loan?

Yes

Yes

Yes

No

Yes

Yes

Tangible - can touch, feel, see

No, but certificate available

Yes

Yes (Physical delivery option available)

No, but certificate available

No, but certificate available

No, but certificate available

7 ways to buy Gold - Which one suits you

The above chart explains the 6 ways to buy or have exposure to Gold. 

The 7th way to buy gold is via the process of an auction conducted by Government or Gold Loan Companies such as Manappuram Finance, Muthoot Finance, or any bank. If a customer defaults on repaying the gold loan, an auction is conducted to recover the loan.

Gold's recent rally

Gold is a medium of exchange since 1660. Since then, gold has given returns equivalent to inflation. For example, over the last 10 years, gold's compounded returns are 8.5% per annum. 

The benefits of certain portfolio hedges such as Gold came into clear focus during-

  • the 2008-2009 financial crisis,
  • did so again during the subsequent European sovereign debt crisis,
  • the 2018 December stock market pullback,
  • and the most recent COVID-19 pandemic.

For a minute, keeping taxes aside;

  • Bonds/ Fixed deposits earn interest;
  • Real estate earn rent;
  • Equity/ stocks earn dividends;
  • Gold earns only inflation rate (महागाई/ महंगाई) over a long period of time.

In times like COVID-19 when interest on bonds/ Fixed Deposits, rent on real estates, dividends on stock are extremely uncertain, investors rush to safe-haven like gold.

 

Indian Equity Vs. Gold

Equity and Gold are altogether two different asset classes, both have extremely different characteristics and different purposes. They are not comparable, at all.

Stillfrom wealth creation perspective I've made the following analysis.

The Year 1979

  • BSE Sensex- INR 100
  • Gold rate per gram- INR 100  

The Year 2021 (as on 31 May 2021)

  • BSE Sensex- INR 52,000
  • Gold rate per gram- INR 5,100 
  • Equities have generated (52000 minuses 5100) 469 times more wealth than Gold.

Conclusion

Gold has historically been the optimal hedge over the long run in terms of asset allocation. Gold deserves an allocation in the client's long-term portfolio. 

 

How much % the allocation to Gold? 

It depends on:

  • Return requirement of the investor,
  • The risk profile of the investor
  • The time horizon, etc.

Equity investments have to be a significant portion of your investments if you consistently want to beat the inflation and create wealth. 

The author is Founder and Catalyst at Aaditya Chhajed Financial Services and can be reached at aadityachhajed@acfas.in


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