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Gold : The Most Loved Asset In Indian Households

India is the second biggest gold consumer in the world - with 3 in every 4 households owning some form of gold. And it's no hidden secret that the yellow metal has been considered the most lucrative investment opportunitiy over the years.

In fact , from 2018-2023 , the compound annual growth rate (CAGR) of gold in India was almost 15%, outperforming the CAGR of other investment options such as stocks and mutual funds. So now with all this said there are 5 popular ways of investing gold:

Gold Jewellery:

Always visit a reputed gold retailer as he/she might sell an 18 carat gold and label it as 22 carat gold , therefore get the gold checked through the carat meter. Now lets take an example:Suppose you are buying a gold chain.
The charges would be as follows: Weight(10g) Thereby a total sum of 69360 . Now if you decid to sell the chain after one year you would not get GST value and Making and Wastage charges, and would get a 90% buyback value only as the retailers have to keep their margins as well. Therefore in the current year considering that gold had a 10%rally Therefore total sum of 60000 despite the 10 % rally , therefore not a great investment option from returns perspective.

Gold Coins:

Example: Weight -10g
Price of 22KT gold -Rupees 60000
3% Making change - Rupees 1800
GST - Rupees 1890
Total Sum -63690
Now on selling:
GST - Rupees 0
Making Charges - Rupees 0
Net price of gold - 66000(Considering 10% rally>)
Buyback value of 98% - 1320
Total Sum - Rupees 64680
Therefore here a gain is seen.

Digital Gold

Price - Rupees60000
3%GST - Rupees1800
6%Spread(to store and manage the physical gold that is backing this digital gold) - Rupees3600
Total Sum - Rupees 65400 This is a 9% loss instantly and even if gold surges 10 % ideally it is a gain of less than 1% even before considering taxes. Therefore not likely a good investment as well.

Gold ETF

Here a fund manages gold assets on behalf of its investors.Therefore if you buy the shares then you get some ownership of the gold assets
Now the good thing is if gold rallys then you would get the appreciation as well as these ETF's can be sold at any time on the stock exchange. But even better is that there is no GST , there is no making charges , there is no wastage charges.
Only thing one would have to pay would be an expense ratio which would be less than 1%.
But there is a thing for taxation , from April 2023 gold ETF's and gold funds will be treated as short term capital gains for less than 3 years.

Sovereign Gold Bond

ADVANTAGES:
NO GST
NO MAKING CHARGES
NO SPREAD
NO TAX
The government (the Sovereign) will ake a list of promises:
1.We will match the price of gold 8 years from now.
2.We will give you an additional interest of 2.5% every year.
3.If you dont sell these bonds for 8 years we will not tax the gains.
4.You can also sell these bonds after 5 years @ 20% tax with indexation benefits.

Therefore FINAL RATING(according to investment related purposes):

  1. Sovereign Gold Bonds
  2. Gold Etfs
  3. Gold Coins
  4. Digital Gold
  5. Gold Jewellery

To understand more you can check out this video: