Old is Gold but Gold has become Old now. Before you get lost in the phrase, let us make it simpler for you. Investing in Gold by buying jewellery is a loss-making deal. Why? Before answering that let us get on the same page about investing in Gold. When you buy jewellery for wearing it or for a gift, that counts as consumption and not investment. Investment is clearly something that not only covers your cost but also gives you additional returns.
Why does ‘Gold Jewellery’ not qualify for ‘Investment’?
Physical Gold comes with additional costs such as Making Charges and GST. Making charges can bore a big hole in your pocket as they generally start from 10% and can even go up to 30%. On top of that, GST is levied @ 5% on making charges and 3% on the gold value. But, this does not end here. Gold Jewelleries are made in 18-carat or 22-carat Gold. This means 75%-90% of the jewellery actually has gold in it. Even while you pay the price for 100% gold, you will get 75% value at the time of resale.
And, don’t forget about the Bank locker charges that you have to pay to keep this gold safe. So, now you know the math behind physical gold.
How to invest in Gold?
A sasta sundar tikau way of investing in Gold is through Sovereign Gold Bonds. These Bonds are issued by RBI in tranches in a span of 2-3 months. You get a holding certificate for it. Apart from participating in the tranches, you can also purchase it from apna Stock Market. This way, bonds will be reflected in your Demat account.
These bonds are issued in the denomination of 1 gram of Gold. So, you can start your gold investment with 1 gram of gold and buy a maximum of 4 kgs of Gold in a Financial Year.
How does this Yellow Metal make your Pocket Green?
By investing in Gold through SGBs, you have saved on making charges, GST, and percentage cuts on value. You will also get an additional 2.5% interest p.a. which will be credited semi-annually to your bank account. You can take a loan against these bonds just as physical gold.
And, the cherry on the cake is zero capital gain tax. These bonds come with a fixed tenure of 8 years. If you hold these bonds till maturity, there will be absolutely zero capital gain tax. Let’s discuss the taxation part a bit more.
Taxation of Sovereign Gold Bonds
If you purchase these bonds from the RBI, they will come with a lock-in of 5 years and a maturity period of 8 years. That means, you can sell them after 5 years but have to pay capital gain tax on it. If you hold it till maturity, then, no Capital gain tax. If you have these bonds in your Demat, you can sell them even before 5 years but the resale value will depend on the existing gold prices and gains would be completely taxable.
If bonds are sold before 3 years, then, you have to pay tax according to your slab rate. If sold after 3 years, then, it would attract a tax rate of 20% with indexation benefits. Also, the annual interest of 2.5% would be taxed according to your slab rate.
How much Gold to buy this Festive Season?
Cutting to the chase! 5%-10% of your portfolio value. You should invest in Gold mainly for portfolio diversification. It is generally seen that Gold performs comparatively better when the Stock market falls. This is the reason why Gold gave around 30% return in 2020 while showing a flat return of 8%-10% after that.
To Sum up