As Indians we're passionate about gold. We are the world's second
largest consumer of the yellow metal after the Chinese. But unlike
others most of us buy gold as a social imperative - for a family
wedding, for the dowry, for a festival, and so on. Historically gold has
worked as a hedge against inflation. In times when the economic outlook
is unstable people and governments try to hoard it in their treasury.
So far in the recent past, with turmoil in the global economy gold
prices have witnessed tremendous hikes and corrections too. Instead of
joining the speculation of where gold prices will go from here, we make a
simplifying assumption - that you buy gold regularly in small
quantities irrespective of the price. This makes sense whether you
intend to splurge at a wedding, or keep it purely as an investment.
Unlike other commodities the price of gold depends upon the demand for
it than its supply because there is more gold with people or governments
than there are reserves under the earth. As an investment gold can make
you richer as it appreciates with time. Holding it does not pay
interest or dividend.
Any investor must not have 5-10% of their total assets as gold.
Let's see the best way to buy and hold the beautiful yellow metal.
Physical Gold
If you are actually going to use gold as jewelry, nothing
is better than buying it in that form. The making charges and jeweler's
profits are worth paying for, if you are getting the chain or earring
you have always desired. But there is eminent wisdom in buying gold as
an investment too, to about 5%-10% of your total assets. Let's look at
four ways to invest in gold, starting from the worst to the wisest way.
The first people in the gold selling business are the
Banks, with their gold coins and biscuits. They have special offers on
Akshaya Tritiya, Dhanteras and other festive days. Not surprisingly,
this is probably the most expensive way for you. Banks charge no less
than 8% charges on the prevailing price. You then have to spend on a
locker to keep it safe. Worse, they don't take the gold back; so should
you wish to sell, you would need to run from pillar to post trying to
get a good rate from a jeweler. Some of them may refuse to buy coins
sold by others and may demand making charges.
If you have too many gold bars, coins lying with you they
can be deposited with the SBI under its Gold Deposit Scheme (GDS) for
3,4 or 5 years and earn an interest of up to 1% per annum. The interest
may not be attractive but you can get exemption on wealth tax and
capital gains tax. The interest earned is tax-free too. You can deposit
ornaments if you're willing to have them melted into uniform bars. When
you want to take back your deposits their weight may be lesser than what
you deposited because they undergo purification and refining to bring
them to uniformity in the government's mint.
Gold Mutual Funds
If
you do not have DP or trading accounts a good way to invest in gold is
through Gold Mutual Funds. Gold MFs are fund of funds (FoF) that invest
in Gold ETFs. There are gold-related funds such as the DSP BlackRock
World Gold Fund, AIG World Gold Fund, Reliance Gold Savings Fund, Kotak
Gold Fund, UTI Master Gold Fund, to name some. For a fee of only about
2% a year, you can invest in these funds, which buy and hold gold on
your behalf. Here the prices move faster and further in both directions
than the price of gold. An FoF is a fund that invests in other funds and
the cost of investing in it is higher than investing in the constituent
funds individually. A great advantage with Gold MF is that you are not
compelled to buy complete units unlike in an ETF. So if you have Rs
20,000 to invest in gold you can buy units in a Gold MF but it would be
insufficient for a unit of gold in an ETF. You have the option of
systematic investment too so you can buy for as little as Rs 100 every
month. SIPs are a good way to accumulate gold as an investment. Best of
all, you can redeem them at a day's notice, at the prevailing market
price (NAV). Gold mutual funds have not performed better than gold ETFs.
No comments:
Post a Comment