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We Indians are crazy on yellow metal! Ever imagined for investing in Gold? Let’s understand the Gold World.

The rate of 10 grams of pure 24 Karat gold was sold at Rs.1,670 in the year 1981 and it is being sold now (2020) at Rs 46,790. We were able to see a 33% price hike between 2019 and 2020. In the history of last 40 years, it happens to be in 2006 and 2012 was the years in which the price hike was above 30%. On an average of 10% price ever year hike happened in the last 40 years (Detailed table given at the bottom).

Presently, the Fixed Deposits rates in India becoming low in such a way that it is not lucrative for investors. It has fallen to 5% p.a. It takes almost 14.4 years to double the investment. Further, the interest income is subject to income-tax, which would be a trouble for the investor in their way to wealth creation. Further, considering the present situation of mounting NPAs pose threat to the investment in FDRs even though Government has guaranteed up to Rs.5 lakhs. People still feel unsafe to have fixed Deposits in Financial Institutions including Bank.

As per the ancient principle it is always safe to have investment in physical gold for which the marketable value also increases every day. But it is subject to certain threats like theft and depreciation on the gold due to usage. Today, you go and buy a gram of gold at shop and you will have to check as to whether it is a pure gold or not. Most of us do not have the capability to check the same. Even, the gold sellers are relying on the machines (Karat Machine) to check the same.

Real Rate of Gold

If you buy a gram of 22 karat gold today, you have to pay Rs.4,427 and you have to pay additionally on an average of 12% to 18% on the value for making and wastage charges which works out to be Rs.796, adding to the value it works out to Rs.5,223. Further, you have to pay for the Government in the form of GST at the rate 3% which works out to Rs.157, adding this to the value which leads to Rs.5,380. Even though the market value is Rs.4,427 you need to pay Rs.5,380 to get a gram of gold. You are paying additionally Rs.953 per gram.

Yellow Metal - A Worth Investment

Alternate Gold Investments India

Government of India has come out with a sovereign gold bond schemes from the year 2015. These schemes are developed and issued through scheduled commercial banks and other channels in a phased manner. Usually, it has a lock-in period of 8 years. The issuer government shall issue per gram of gold of 24 karat at present value and it will be redeemed at the present value of 24 karat at the time of 8th year’s market. In between on yearly basis interest on the nominal value at the rate between 2.5% to 2.75% is being given to the investor. This not available when you buy a gold in physical form.

As per the records available in the history of gold rates and based on the projection it can be said that the gold rate of 24 Karat (10 Grams) would be Rs.1,33,497 in 2030. Government of India is presently issuing the Sovereign Gold Bond 2020-21 in 6 tranches as 2020-21 Series I, Series II, Series III, Series IV, Series V and Series VI

The issue price decided is around Rs.4,677 per gram and a person can buy up to 4 kgs and there are other restrictions and permissions as directed by RBI.

Physical gold bars (24 Karat) are still available for trade.

Extra Costs to Investors

It would be prudent for the investor not to lose money in any form, very particularly, when you buy physical gold as said above you have to lose money per gram Rs. 953 in the name of making charges, wastages and GST. But if you buy the gold bonds issued by the government or Physical Gold bar you pay only for the gold and not for the making charges. On top of it, every year you will be paid around 2.5% till end of the redemption of the Bond. Assuming that the bond will be for eight years, the total interest received would be 20% (8 years * 2.5% – All years together). Further, on the date of redemption of the bond, you will be paid market value of the gold held by you without any reduction or wastage. However interest is not applicable in physical gold bars

Return Calculation

Today everybody takes cost benefit analysis, let’s calculate to know better. Let us assume, you have Rs.10 lakhs to buy gold and it is an investment plan and we analyse in the following three methods. One is to buy Gold Ornament, second is to buy Gold Bar and third one is buying Gold Bond issued by Government.

 

Particulars

22 Karat

24 Karat

Gold Ornaments

Pure Gold

Gold Bond

Rate/Gram

4,427

4,627

4,627

Wastage & Charges @ 18%

797

-

Sub-Total

5,224

4,627

4,627

GST @ 3%

157

138.81

-

Total Rate / Gram

5,381

4,765.81

4,627

Total Value of Investments

10,00,000

10,00,000

10,00,000

Total Grams Purchased

185.85

209.83

216.12

Expected Rate at 8th Year / Gram

11,033

11,033

11,033

Resale value @ 97% / Gram

10,702

-

Total Resale Value

19,88,972

23,15,054

23,84,482

Next 8 years Interest (2.5%/year)

-

2,00,000

Total Realisable Value (8th Year)

19,88,972

23,15,054

25,84,482

Your investment becomes in times

1.99

2.31

2.58

Income-tax Payable (30% slab)

2,96,691

3,94,516

60,000

Total available for Investors

16,92,281

19,20,538

25,24,482

Upon redemption, you will be able buy new model jewels if required or you can reinvest in gold bond again.

Trade your Gold Bonds in Stock Exchanges

Gold bonds are easily tradable in stock market, upon dematerialization of the bond, if required you can sell the bond in regulated market like NSE and BSE.

Taxation issues in Gold:

When we sell our physical gold, the gain from the sale becomes capital gain and income-tax to be paid on it according to the rates applicable to the person. But in case of Gold bond, the capital gain  on the redemption is not taxable but the interest given under the scheme is always taxable. Even in the taxation point of view it is always better to invest in Gold bond than buying physical gold.

Gold Rates (Standard 24 carats)

(up to the year 2020 actuals and rest of them are projected based on history)

 
 

Year

Rates in Rs./10 gram

Per Gram

%

tage

Year

Rates in Rs./10 gram

Per Gram

% tage

31.03.2005

6,180

618

102%

31.03.2030

1,21,361

12,136

110%

31.03.2004

6,065

607

114%

31.03.2029

1,10,328

11,033

110%

31.03.2003

5,310

531

106%

31.03.2028

1,00,299

10,030

110%

31.03.2002

5,010

501

120%

31.03.2027

91,180

9,118

110%

31.03.2001

4,190

419

96%

31.03.2026

82,891

8,289

110%

31.03.2000

4,380

438

103%

31.03.2025

75,356

7,536

110%

31.03.1999

4,235

424

105%

31.03.2024

68,505

6,851

110%

31.03.1998

4,045

405

86%

31.03.2023

62,277

6,228

110%

31.03.1997

4,725

473

92%

31.03.2022

56,616

5,662

110%

31.03.1996

5,160

516

110%

31.03.2021

51,469

5,147

110%

31.03.1995

4,680

468

102%

31.03.2020

46,790

4,679

133%

31.03.1994

4,598

460

111%

31.03.2019

35,220

3,522

112%

31.03.1993

4,140

414

96%

31.03.2018

31,438

3,144

106%

31.03.1992

4,334

433

125%

31.03.2017

29,668

2,967

105%

31.03.1991

3,466

347

108%

31.03.2016

28,340

2,834

108%

31.03.1990

3,200

320

102%

31.03.2015

26,245

2,625

92%

31.03.1989

3,140

314

100%

31.03.2014

28,470

2,847

96%

31.03.1988

3,130

313

122%

31.03.2013

29,610

2,961

106%

31.03.1987

2,570

257

120%

31.03.2012

28,040

2,804

135%

31.03.1986

2,140

214

100%

31.03.2011

20,775

2,078

127%

31.03.1985

2,130

213

108%

31.03.2010

16,320

1,632

108%

31.03.1984

1,975

198

110%

31.03.2009

15,105

1,511

125%

31.03.1983

1,800

180

106%

31.03.2008

12,125

1,213

129%

31.03.1982

1,700

170

102%

31.03.2007

9,395

940

111%

31.03.1981

1,670

167

100%

31.03.2006

8,490

849

137%

 

This article is to create investment awareness among the investors and general public and it cannot be taken as professional advice and accordingly the publisher or the author is not responsible for any consequences taking decision upon this material. Before investing, it is always better to discuss your auditors or advisors in whom you are relying most.

The author of the article is Mr. Nikhil Kothari, a business consultant who can be reached at nikhilkothari99@gmail.com


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Category Professional Resource, Other Articles by - Nikhil Kothari 



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