Indians love to invest in real estate and gold. While real estate has been going through tough phase for last few years, gold has risen around 20 per cent after giving negative returns for the last three years. With downside looking limited experts say it is the right time to add gold to your portfolio. But do you know apart from jewellery there are several other cost-efficient ways of investing in gold. Here are a few tips for you on how to invest in gold this festive season.
Sovereign Gold Bond (SGB)
The government has recently issued the sixth tranche of SGB. Unlike previous issuances, this time the government has launched it at discount of Rs50 at Rs, 2957, which is it the lowest subscription price for 2016-2017. But at the same time the government has reduced the interest rate from 2.75% to 2.5% on these bonds.
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So if you have been planning to invest in gold this festive season buy SGB before the closing date of November 2. The tenure will be the same for eight years with exit option being given from the fifth year. The minimum investment in these bonds in one gram with maximum buying limit of 500 grams. By investing in these bonds you can cash in on the upside movement in gold prices as well as earn 2.5% interest at the time of exit. It comes in the paperless form so you are saved from the hassle of keeping it safe inside lockers. The bonds are sold through banks and designated post offices. You can also convert it into demat form.
Taxation: Interest earned on gold will be added to your income and is taxable as per tax slab. There is no tax at the time of maturity. If you redeem it before maturity, you will have to pay capital gains tax on it. If the bonds are sold before three years, the short term capital gain is taxable as per one’s tax bracket. If sold after three years, then gains would be treated as long term capital gain wherein a tax rate of 20 per cent with indexation will be applicable.
Exchange traded funds (ETFs)
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Another way to buy gold in electronic form is through demat account. Several mutual funds offer you this option by listing them just like stocks on exchanges and they are linked to international prices. One of the main advantages is you can invest in ETF whenever you want. Unlike, SGB they are not open for a short span of time. If you have a demat account you can invest according to your convenience. On the flip side there is an expense ratio of around one per cent on ETFs. It makes it costly compared with sovereign gold bonds.
Taxation: They are taxed just like debt funds. Capital gain tax has to be paid when you sell them off. If you hold them for more than three years long term capital gain is levied at the rate of 20 per cent with indexation. In case of less than three years short term capital gain is levied as per your income tax slab.
If you are not convinced and still want to invest in physical form, go for gold coins from MMTC. Gold coins are available in denominations of 5 and 10 grams and bar or bullion of 20 grams through MMTC outlets. The 10 gramme coin of 24 karat purity and 999 fineness is available at Rs32,757 (excluding VAT and other taxes).
Banks also sell coins but they can be bit costly as they charge you premium of around 10 to 15 per cent. The flip side is MMTC and banks are not allowed to buy gold back from their customers. The local jeweller may sell you at lower cost but then you have to be sure of their quality.
Taxation: For physical gold the taxation is same as ETFs.
Gold prices are expected to rise in prices over long periods. One can add it to the portfolio as a hedge against inflation. The thumb rule is it should not be more than 10 to 15 percent of your portfolio.