Why, How and How much to invest in Gold?Invest as low as Re1, earn interest, save tax, without demat

Adesh Lunawat
Jun 6, 2020
3 min read

Gold is respected throughout the world for its value and rich history. Gold is an indispensable part of a well-diversified portfolio . While from Jan 1 ,2020- June 1, 2020 Nifty has given a return of -16.67%(losses), gold has increased by 21.38%.

It is less volatile in long term, highly liquid and provides protection against Currency Depreciation, Inflation, war, and other uncertainties. In India it is considered auspicious and sacred and worn as an ornament too.

In hard times, Gold is the good friend and good friend is the gold

Get the Best Comparison Table at for all different ways to invest in gold at the end .

Objectives should be Clear

Before you invest in Gold, you should be crystal clear with your future goals, plans, and objective. Every scheme can be good/ bad depending on your priorities.

3 Key Things to decide before investing in Gold

1)Decide the time frame- 6months, 1 year,5 year or forever

2)Decide the purpose- Trading, Investing, Portfolio Diversification, Hedging, Child’s wedding

3)Decide your Risk Appetite- If you want more risk, then you should allocate lesser amount to gold and more to equities and debt, and if you can’t bear risk at all then FDs and Government bonds can be a better option.

Ways to invest in Gold

There are 5 ways to invest each having its own pros and cons .Lets have a closer look at them:-

1)Physical Gold-Jewelry, coins and bars

2)Gold ETFs

3)Gold Mutual Funds

4)Sovereign Gold Bonds(SGBs)

5)Digital Gold

At the end I have given a checklist and comparison table, that can come handy when investing in Gold where I have taken into consideration the following 10 points:-

1. Min Amount

2. Max Amount

3. Taxation

4. Interest/Dividends

5. Requirement of Demat Account

6. Transaction Charges

7. AMC

8. Liquidity

9. Lock in Period

10.Safety

Physical Gold

Affinity of people towards physical gold is well known. However, it has hefty transaction charges and for jewelry- making charges are also applicable additionally. Then the buyer also bears the risk of safety and cost of storage and insurance.

Any Capital gain within 36 months(STCG) is taxed at Normal Slab Rate and beyond which LTCG is taxed at 20.8%(including cess) with indexation benefit(adjusted for inflation).

Gold ETFs

An exchange-traded fund is an investment fund traded on stock exchanges. It aims to track the domestic physical gold price.

Taxation same as in case of physical gold

SBI ETF(Blue) v/s Nifty 50(Yellow)[Source:-Moneycontrol]

Pros

Tracks gold market price. Therefore, returns are around market returns of gold.
No storage cost and safety risk.
Low transaction charges of around 1.5%
Highly liquid
Tradable on stock Exchange
No lock in period

Cons

Mandatory Demat Account required
SIP not allowed

Gold Mutual Funds

A Gold MF is a fund that invest in Gold ETFs. It diversifies the portfolio among several ETFs and provides professional management services.

Taxation same as in case of physical gold.

Pros

SIP allowed
Demat Account is not compulsory
All benefits mentioned of Gold ETFs above

Cons

Higher AMC charges than Gold ETFs. Around 1.5-2%

Sovereign Gold Bonds

It’s the best way to invest in gold provided you have longer time horizon. SGBs are government securities denominated in grams of gold. They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity. The Bond is issued by Reserve Bank on behalf of Government of India.

The key aspect is Interest and Taxation

Pros

Interest 2.5%p.a . payable semi-annually
LTCG on redemption of SGBs on completion of 8 years is fully exempt
No AMC cost
Can be used as collateral for loans
Tradeable in Stock Exchange
Redemption price is almost equal to market price.
Guaranteed by Government of India

Cons

Min 1 gm and max 4 kgs are allowed in case of Individuals.
Interest is taxable
If sold on exchange before 36 months, STCG tax needs to be paid at slab rate. Beyond which, LTCG of 20.8%(including cess) will apply.
Redemption is allowed after 5 years but if redeemed before 8 years LTCG will apply.
Liquidity in stock exchange can be low.

Digital Gold

It is a form of electronic money and a simple, convenient and secure way of investing in gold without worrying about its purity and safety. This is being offered by companies like Paytm, Phone pe , Google pay, etc.

Taxation is same as in case of physical gold

Pros

Investment as low as Re 1 is allowed
Fully insured
No demat account required
Highly liquid
No lock in period
Physical delivery facility is available

Cons

Companies may have max limit imposed.(Paytm-50gms)
Transaction charges are applicable
After certain years, company may charge AMC or storage charges

How much to invest in Gold?

In general for a well diversified portfolio, one must allocate 8-15% of his investments into Gold. However, it may vary depending on risk appetite, personal circumstances, and market situations.

Click below to get table

Checklist and Comparison Table

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With full modesty and smile

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