As good as gold: Smart ways to make investments on Dhanteras

It’s that time of the year again when people flock to the stores to buy a piece of the yellow metal to add a touch of auspiciousness to Diwali. However, this Dhanteras, is buying physical gold still a feasible option?

Make smart investments

This year, the pandemic has only elevated the prices of gold to pose as a barrier to the jewellery industry. People are looking to invest smartly but are also focusing on saving money and pushing back on voluntary expenses. This may still not stop those who buy gold as a personal belonging or as ornaments. But those who equate gold to investments must surely pay attention to the many ways of purchasing physical gold.

Here are some of the ways to make investments in gold:

Gold ETF- A cost-effective investment in gold

The ETF (Exchange-Traded Fund), the commodity-based mutual fund that invests in gold is an alternative to owning paper gold in a more cost-effective manner.

These are exchange-traded instruments that invest in 99.5% pure gold. None of the taxes levied on physical gold purchases are applicable to this investment instrument which also happen to offer safety and efficiency at the same time.

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The Gold Savings Scheme

The ‘Gold Savings Scheme’ allows you to deposit a fixed amount every month for the chosen tenure. At the end of the term, one has the option of buying gold (from the same jeweller) at a value that is equivalent to the total money deposited, with an inclusion of a bonus amount Sovereign Gold Bond. This is a smart way of investing in gold.

Sovereign Gold Bonds are regarded as one of the most lucrative ways of investing in gold. They are priced at the prevailing market rates of gold and also come alongside an added interest payment of 2.5% on the issue price until the maturity period - 8 years. An added bonus is that investors of SGB do not have to pay a capital gains tax on the maturity of this instrument if it is bought through primary issuance.

Sovereign Gold Bonds are sold through offices or branches of Nationalised Banks, Scheduled Private Banks, Scheduled Foreign Banks, designated Post Offices, Stock Holding Corporation of India Ltd. (SHCIL), and the authorised stock exchanges either directly or through their agents. You can invest online either through listed banks, SHCIL, and demat accounts with your broker.

Physical Gold vs. Financial Forms of Gold

Financial forms like Sovereign Gold Bonds (SGB) are more efficient avenues to invest in gold as compared to purchasing physical gold.

While gold jewellery is bought and used for its aesthetic value, it is ineffective as an investment option. This is because of the loss in value on resale. The making charges on gold jewellery, which typically range between 6-14 per cent of the cost of gold (and may go as high as 25 per cent in case of special designs) are irrecoverable. Also, the 3% GST paid on gold jewellery cannot be recovered on resale.

One may feel that gold coins and bars are better suited for investment. However, it should be noted that the purchase of gold coins and bars comes at a significant premium of about 5-15% over and above the gold prices. This amount plus the GST paid remains irrecoverable on sale. Also, the lower the denomination you purchase, the higher is the premium.

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Gold as an option for long term investments

When one talks of including gold in the long-term portfolio, the idea is not to outperform the market. The focus is more on diversification than on enhancing returns or wealth creation.

You must have an 8-10% exposure to gold in your long portfolio; ideally, it can be demat gold. It will give your portfolio variety and also will act as a low-risk addition to your portfolio. As an asset, its stability has stood the test of time over the years!