The Buyt Desk
If you have been thinking of buying gold then it is not necessary for you to walk into a store to buy gold. There are several other ways of purchasing this precious commodity. But if you are the kinds who like to touch, hold, see and feel the yellow metal then definitely go for physical gold like jewelry, coin, or gold bar(bullion). But if you want to hold gold in a manner that would earn you a monetary return and you are spared from the headache of storing it securely then let me tell you few other options that may interest you.
You can buy gold in 4 formats
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Physical Gold
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Digital Gold
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Gold Exchange-traded Funds(ETF)
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Sovereign Gold Bond(SGB)
Each has its advantages and drawbacks. Let’s look at all the 4 ways-
Physical Gold
Many news reports suggest that the Indian household has over 25,000 tonnes of gold. There is no official data to support this figure but it a known fact that physical gold is the most loved way of keeping gold in India. One can simply step out to a market and purchase this form of gold. But do remember that there are additional costs with this purchase- you have to bear the cost that a jeweler charges in the form of making charges, minting charges, and the storage cost which is known as the spread cost. Apart from these charges, you have to pay a GST of 3% as well. But when you go out to sell this gold you never get back the money spent on spread cost or the GST. If you sell the physical within 3 years of purchase then will have to pay a short-term capital gain tax according to your income slab. If you sell it after holding it for 3 years then a long-term capital gain tax at the rate of 20% with inflation adjustment index benefit.
Digital Gold
Lots of e-wallet apps are giving you the option of buying digital gold. These companies have tied up with gold distribution/trading companies like MMTC-PAMP, Augmont and Safegold. The purity of gold is 999.9 and you can buy this gold for as low as Rs 1. You buy gold from e-wallet companies which are kept in the safety vaults of these gold companies. You also pay a charge for the vault and for the insurance. You can request for physical delivery of this gold but only if you hold a certain quantity of gold then only will it be delivered physically. It is taxed just like the physical gold. The biggest disadvantage of digital gold is that there is no regulatory framework that overlooks this.
Gold ETFs
The gold ETFs, i.e. exchange-traded funds, are a sub-category of mutual funds that invests only in gold. Instead of buying physical gold, you buy those MF who are tracking gold prices. The underlying asset is gold and gold-related companies like mining, manufacturing, and gold transport companies. ETFs can be traded in the stock exchange. A Demat account is necessary to invest in ETFs. Their value changes several times in a day as they are traded on the stock exchange. The value of ETFs varies in real-time. Therefore, investors can take advantage of market fluctuations while buying or selling in ETFs. If you invest in gold ETFs, then a period of 3 years or less will be short-term, and more than three years will be long-term. Thus, the STCG depends on the income tax slab that can go up to 30 %, while the LTCG is 20 % with the benefit of indexation.
Sovereign Gold Bond
Sovereign Gold Bonds(SGB) is issued by the Reserve bank of India. You earn a return based on the price of gold plus annual interest of 2.5% from RBI. The SGB prices are determined as per the prevailing price of gold in that week. One unit of Sovereign Gold Bond is equivalent to 1-gram Gold of 999-purity. The maximum limit of investment in SGB is 4kg for individuals and HUFs. Tenor of the bond is 8 years but early redemption is allowed after five years from the date of issue. The bonds are held in the books of the RBI or in Demat form. Though there is a lock-in period of five years and cannot be redeemed before it in the primary market yet the bonds are tradable in the secondary market if held in Demat form. Investors who want to exit before the end of five years from the date of the issue have an option to sell the bonds in the secondary market through their brokers. Interest received from bonds is taxable but TDS is not applicable on it. The long-term capital gains tax arising on redemption after maturity of SGB will be exempted.
