How Many Types Of Gold Investments Are There In India?
In India, there are many types of gold investment. We have real gold, like rings, coins, and bars, which give clear ownership but need safe keeping.
Online digital gold allows you to buy and keep it without needing to hold physically.
Sovereign Gold Bonds are securities backed by the government giving interest and increase in value.
Gold Exchange-Traded Funds (ETFs) can be bought on stock markets and let you touch gold prices but no need to hold real gold; also Gold mutual funds that put money in companies that mine for gold or invest in those ETFs.
Physical Gold
Gold in physical form, such as jewelry, coins and bars, is a preferred method of investment in India because it is tangible and holds cultural value.
The primary advantage of these Types of Gold Investments is that it’s a tangible item, capable of being passed onto future generations, and it holds worldwide recognition as a symbol for wealth and prosperity.
But, there are also some disadvantages to putting money in physical gold. You must find a secure place for it so nobody can take it from you, may have additional charges that increase the overall cost and could be at risk if gold prices change unexpectedly.
Selling physical gold is a lengthy process too. Those who invest might face difficulty in verifying if the gold is genuine or not, especially when they deal with unorganized traders on the market.
Digital Gold
Digital gold is a form of gold that exists in secured vaults and is traded and stored virtually. Individuals who want to earn money from gold can purchase and sell it online.
Investors can store fraction units and they get allotted smaller equivalent units of 99.9% 24K gold. All digital gold, no matter how small, will have a matching piece of physical gold stored there.
The main benefits of digital gold are that you don’t have to keep anything physical, it’s possible to purchase in small amounts starting from a single rupee (₹1), and the buying process happens online.
In 2021, India’s demand for gold reached approximately 797.3 metric tons, which is a notable increase of 78.6% compared to the previous year, highlighting the growing importance of gold as a valuable investment in the country.
Sovereign Gold Bonds
Another option is Sovereign Gold Bonds, these are securities supported by the government that you can get from the Reserve Bank of India and are valued in kilos of gold.
Every bond has an assigned gold value, thus investors can gain money from rises in gold prices and receive a steady 2.5% yearly interest rate that is given out two times per year.
SGBs are an investment that helps reduce taxes because they possess various tax benefits. For instance, if you keep SGB until it grows up or matures then there is no need to pay capital gains tax on them.
Gold Exchange-Traded Funds
Gold Exchange-Traded Funds, also known as ETFs, are investment funds that can be traded on stock exchanges similar to normal equities. One difference is they are passively managed and track gold prices.
Investors can buy shares in gold ETFs, which usually back one gram of gold, letting them get into gold prices without having to own actual gold. These ETFs have to keep top-notch gold that’s worth the shares they sell and get checked regularly to make sure everything’s above board and clear. This makes gold ETFs a simple and safe way for investors to get involved in the gold market.
The major advantages of gold exchange-traded funds are their high liquidity, which comes from the ability to buy and sell them at market prices during trading hours, as well as not needing to deal with physical storage for gold.
Gold ETFs have management fees that are usually less, around 0.5% to 1%. On the other hand, physical gold investments need proper storage and can incur making expenses.
Data from recent times shows that the Assets Under Management (AUM) for gold-oriented exchange-traded funds has climbed up very fast in India. It went from ₹4,385 crores during November 2018 to ₹22,736 crores around March 2023.
Gold Mutual Funds
Gold mutual funds primarily invest in gold-related assets, which comprises real gold, gold ETFs and equities of gold mining companies.
These funds aim to provide investors with a stake in the fluctuations of gold’s cost, but without the hassle of holding it physically. This eliminates concerns related to safekeeping and protection.
Gold mutual funds are often bought and sold via mutual fund businesses. This method of purchasing gold is more suitable for those who don’t possess a demat account because the gold mutual funds can be traded on stock exchanges similar to shares.
New data shows that gold mutual funds are becoming more popular, especially seen in an increase of the assets they manage. This suggests investors are interested in adding gold to their investment mix for protection from inflation and maintaining wealth.
Risks Associated with Gold Investments
The prices of physical gold in the market can change a lot, causing investors to lose money because of different things like how the economy is doing or political events happening around the world.
Keeping gold in a physical form requires security. This can be costly and risky, as there is always danger of damage or theft.
Mutual funds and ETFs that hold gold might not have storage problems. Still, they can be affected by changes in the market and fall in prices.
There are possible risks from regulations on types of Gold Investment, especially for schemes that are not well regulated and can cause losses to investors or can even fraud them of their investment.
Tax Implications of Gold Investments
According to the latest tax plan, starting from 23rd July 2024, every gain will be taxed at the same rate of 12.5% for long-term capital gains (LTCG) across all types of investments. The tax perk of indexation that people used to get for investments has been taken away in Budget 2024. Before, some investments got a 20% LTCG tax with the indexation benefit and others a 10% tax without it. The new rule for higher LTCG tax without indexation kicks in from July 23, 2024.
For short-term gains from stocks, equity funds, and business trust units like InvIT or REITs, the tax will go up to 20% from the lower rate of 15%. However, the tax rate for other short-term investments hasn’t changed. The higher tax rate on short-term gains kicks in from July 23, 2024.
The 2024 budget also tweaked the tax on profits from gold funds or ETFs, international funds, funds of funds (which include other investment funds), and gold mutual funds. Before, these types of funds were taxed like any other international debt funds. Investments held less than three years were considered short-term, while those over were seen as long-term.
Short-term gains were taxed based on your usual income tax bracket. Long-term gains got the 20% rate, but you had to get the indexation benefit.
If investors plan and understand these tax results, they can make the most of their returns and lessen the tax load on their gold assets.
Gold investing is attractive to a large number of Indian investors because it offers a unique blend of safety, ease in converting to cash and potential for preserving wealth. To make informed judgments, you need to understand the types of Gold Investment and risks associated with each sort, particularly as the gold market keeps evolving.
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Disclaimer – This article is for educational purposes only and does not intend to substitute expert guidance. Mutual fund investments are subject to market risks. Please read the scheme-related document carefully before investing.
