The ornamental value of gold need not be more emphasized in a gold crazy nation like India. It is a good investment option too that remains steady even in the face of economic upheavals. Considering gold as an asset for investing purposes needs a different outlook.
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Investing in gold in forms other than jewellery:
In India, investments in gold have generally been in gold available as jewellery. It is the most preferred option particularly in marriages and other auspicious occasions. In fact, gold and jewellery are considered synonymous. People in Pondicherry buy gold for major occasions.
They use it as a form of investment as well. Gold rate in Pondicherry undergoes constant changes. Gold bars or gold coins too can be purchased for investment purposes. When this gold is sold, we might not get the same price at which the purchase had been made.
The other forms of investment like gold funds, gold ETFs, gold savings schemes and e gold are now catching up due to increasing awareness. In case of gold ETFs, gold is held in demat form. Purity and safety of the investment are not issues in this form of investment. A demat account is required to make this purchase. Gold funds are another option by which an investment can be made in gold.
The gold funds capitalize in gold ETFs and a demat account is not needed for this. Gold funds can be chosen if there is a plan for a long-term investment. Local jewellers too offer savings in gold scheme. The jewellers can be paid consistent instalments for a fixed period and at the end of this period the amount deposited may be used to buy gold. This way where one can have consistent savings in gold but it has to be purchased at the market price existing at the conclusion of the investment period.
Cost per Gram of Gold and Extra Expenses in Purchasing Gold
It is essential to know the per gram cost before buying gold. There might be variations in the price from showroom to showroom as they are brought from different association of jewellers. Different websites can be checked to know the current cost per gram of gold.
The gold rate in Pondicherry today stands at Rs 2886/ per gram of 22kgold and at Rs 3030/ per gram of 24 k gold. Another point to be noted is -the purchase of gold jewellery involves extra charges. These include making and wastage charges that have to be paid to the jeweller. There are other expenses like storage costs for physical gold which may be in the form of jewellery, coins, bars etc.
Gold ETFs need a demat account and this too requires spending of money. There is a need to pay for brokerage also. While exiting from gold funds and gold ETFs there is an exit load that needs to be paid if the investment is sold in a specific tenure.
Liquidity of Gold
Gold in any form provides liquidity. Gold funds and Gold SIPs do not have a lock-in period, so can be sold easily. Jewellery, coins, bars can be easily liquidated at the local jeweller. Banks can be approached to seek gold loan. This can be done by seeking loan against gold jewellery. This is useful to satisfy short term need for money and there is no need to sell gold either. The money lenders too can be approached but the interest rate charged by them is very high.
Gold Does Not Provide Regular Income
If investment in gold is being made with an intention to get a regular income, then it might not be fruitful. Gold is useful to guard against inflation and can be used for capital appreciation but gold investments cannot serve as a source of regular interest income or dividend income. Gold funds that have dividend option can provide income. The amount is not high to be thought of as an investment opening.
Tax on Gold
People overlook the taxability aspect of gold when investing in it. This is mostly due to lack of awareness of the tax rules in this matter. 1% of tax has to be paid when cash purchase of gold jewellery exceeds Rs 5 lakhs. A VAT of 1 % is charged when a bullion purchase above 10 grams weight is done and the amount used for purchase exceeds Rs 5 lakhs.
There is no need to pay tax when investing in gold savings schemes. If jewellery is purchased when once the investment period is over, the tax levied is similar to that of physical gold. If gold ETFs are sold within three years of purchase then Short Term Capital Gains tax as determined by the tax bracket of the person has to be paid. This is based on the time for which the investment has been held.
This article has been written by the team money visual. We provide finance and investment information for education purpose.