Akshaya Tritiya is an auspicious period during which people buy gold with the belief that it will attract wealth and good fortune. There are, however, other reasons as well to buy gold, especially in the electronic form. Experts say gold should be an integral part of your portfolio due to its safety, liquidity, inflation-beating capacity, and returns. However, before buying gold in any form, ensure that the investment is as per your risk appetite and the overall portfolio structure.
Earlier, only physical gold was available. But now there are more options. Here’s a quick look at what those are.
Sovereign Gold Bonds (SGBs)
SGBs are central government-backed gold bonds, denominated in grams of gold. They bear an interest of 2.5 per cent per annum on the issue price. They are i ssued for a fixed term of eight years with an option to redeem from the fifth year during the buyback window announced periodically by the Reserve Bank of India
(RBI). SGBs can either be held in a demat account or by e-certificate mode (non-demat).
The interest received is taxable in the hands of the investor. “The interest received from SGBs will be taxable as ‘income from other sources’. However, as per Section 193 of the Income Tax Act, 1961, no tax deducted at source (TDS) shall be applicable on this interest,” says Ankur Agarwal, a chartered accountant.
Gold Exchange Traded Funds (Gold ETFs)
These represent physical gold but in dematerialised or electronic form. Investors can trade in them just the way they trade in stocks through a registered broker and using a demat account. ETFs are cash settled. So, when you sell the ETF, investors will get cash and not physical gold.
Although no exit or entry load is charged in Gold ETFs, there are some other charges such as expense ratio, trading cost (brokerage fee) and holding cost (demat account charges). “There is also a difference between the actual value and the traded value of the ETFs,”says Rushabh Desai, founder of Rupee With Rushabh Investment Services.
Digital Gold
You can buy gold of 24 carat without actually taking physical delivery of it. Various apps offer this service where you can pay via UPI or other banking channels. Once the payment process is through, the ‘gold’ will be delivered in your digital vault.
The app from which you purchase the digital gold will hold the physical gold in a safe vault and a certificate of purity will also be provided by government licensed entities.
Do remember that GST of 3 per cent is applicable on such digital gold purchases and there is a holding cost as the gold has to be stored in a vault. This is why the free holding period is usually limited to five years or less on some platforms.
“Digital gold may have a holding period for more than five years, but then the investor has to either redeem it for real physical gold or sell it,” says Mahesh Shukla, founder and CEO, PayMe India, a non-bank finance company.
Physical Gold
With physical gold, one must keep in mind the several cost components like making charges, premium charges, insurance cost and others that are applicable at the time of buying gold jewellery or coins or biscuits. There is also an additional cess of 4 per cent over and above the tax amount.
