Primarily there are about four ways in which you can buy and own
gold. First one is the physical gold which is in the form of coins that
we have been all doing all this while. There are certain constraints
that come along while buying physical gold. Firstly, there are purity
issues most of the times. There is pricing concerns because we have
different prices being offered by all different vendors. There is a coin
making charge and the profit margin of each vendor is going to differ.
So, this has been the earlier method of owning gold. Now we have new
products available.
The second method is a gold fund. These are offered by mutual funds. It
is basically to assist people who do not have a demat account or do not
want to get into the hassles of opening a separate demat account or
anything of this sort. Like you invest in regular mutual funds, you give
your money to a gold fund which further invests into the gold ETFs. So,
all other benefits remain the same. Just that there are two layers. So
there is a cost associated with this which is about 1 percent.
The third forms is gold Exchange-Traded Fund (ETF). These are listed on
the stock exchanges and they need to be bought through a broker. There
are certain advantages of investing in gold through the ETF form. There
is an absolute surety about the purity of gold that you would be
getting. The pricing is more transparent. There is no coin making
charges. The only cost associated with this is the brokerage that you
would be paying to your broker. The third benefit is from the taxation
perspective. If you hold gold for more than one year in ETF form, you
get the benefit of long-term capital gains, against physical gold where
you need to hold it for about three years to get the preferred tax rate.
When you sell back gold in the ETF form, you get a better price than
what you will be getting from your jeweller or from the bank. Most of
the banks who have sold it to you do not even buyback the gold coins.
Lastly, as they are into electronic form, just the way you owning shares
these are also in an electronic form, so there are no storage issues,
no worries about it getting lost or misplaced.
The final way is an E-gold. E-gold is listed on National Spot Exchange
and you have to have a separate commodities demat account for this. You
can physically convert this electronic gold into physical mode if you
have E-gold under the National Spot Exchange. From taxations
perspective, it is same and at par with physical gold. So, you need to
hold on for at least three years to get the preferred tax rate for the
long-term capital gains.
