Buying gold is considered auspicious during Dhanteras. Do not restrict yourself to physical gold this Dhanteras, consider other options such as Gold ETFs as well.
Today is the auspicious occasion of Dhanteras and you may be planning to buy gold. Buying gold during Dhanteras has long been associated with prosperity and good luck. However, the purity and its storage make investing in the yellow metal a tedious process. Investing in physical gold has been a preferred investment avenue for many, even if it just means a token investment.
Let us take a look at options you have if you are planning to invest in gold this Dhanteras:
Physical Gold As Gold Coins, Bars Or Jewellery
If you are planning to purchase gold bars or coins this Dhanteras, opt only for hallmark certified gold and look for a hallmark stamp of the Bureau of Indian Standards (BIS).
Pros: Easy to buy and good as a token investment.
Cons: GST and making charges over the quoted price, physical storage challenges, and purity concerns.
Gold Savings Funds
This Dhanteras, you can start investing in Gold Savings Funds that are Mutual Funds primarily investing in Gold ETFs. Unlike Gold ETFs, you can invest in gold funds without having a demat account. Also, investment can be made by opting for a systematic investment plan or SIP. You can invest in this instrument with amounts as small as Rs. 500.
You can buy Gold Saving Funds from Mutual Fund companies, brokerages, trading platforms, agents, or aggregators. Any exit from the fund before one year of investment will mean you will be liable for an exit load. Another downside for Gold Savings Funds is that they are required to reach a minimum quantity of 1 kg of Gold to buy or redeem units in Gold ETFs. This can lead to underperformance of the fund compared to a direct investment in Gold ETFs.
Pros: Easy to invest using SIPs, no prior investment experience needed, no physical storage concerns.
Cons: High exit load, underperformance compared to gold ETFs.
Gold ETFs or exchange-traded funds is another way you can start investing in gold, this Dhanteras. Gold ETFs pool in money from various investors and invests the same in gold futures. The money is managed by an experienced fund manager allowing you complete transparency and a liquidity option during market hours to sell and redeem your holding units. One can start investing in Gold ETFs from as low as a gram of gold.
Any investment in Gold ETF for less than 36 months attracts short-term capital gains tax and gets added to the annual investment of the investor.
Pros: Lower charges than Gold Savings Funds, invest as low as 1 gram value of gold, backed by SEBI.
Cons: No SIP-based investment, comes with a high-cost ratio, requires a demat account.
Sovereign Gold Bonds
The government has initiated its Sovereign Gold Bond Scheme allowing for an easy and tax compliant investment option in the precious metal. The sovereign gold bonds are available for purchase in various tranches.
The government has announced the purchase price of Sovereign Gold Bond (SGB) at Rs. 2,987 per gram for which subscription opened on October 16, 2017, a day before Dhanteras. If you apply online and pay through a digital mode, you get an additional discount of Rs. 50 per gram less than the nominal value, making the effective price come down to Rs. 2,937 per gram of gold.
The maximum investment under the scheme has also been raised from the earlier level of 500 grams of gold to 4 kg per investor and 20 kg for trusts. The bonds come with an 8-year tenure and offer tax-free returns on investment after five years. The government, under the scheme, offers an interest of 2.50% per annum payable semi-annually on the nominal value.
Pros: No physical storage concerns, interest offered over and above price escalations, tax-free returns.
Cons: Available only in tranches, lock-in period of 5 years, sovereign guaranteed returns.
A word of caution: Along with gold, it would be wise to diversify your investment in other instruments as well. Since gold is a volatile commodity, it will be risky to invest your money only in the yellow metal.