How To Invest In Gold(Part-2)

  Hello my dear friends I hope you all are doing well. In my previous blog I suggested you 3 ways to invest in GOLD. Today I will continue f...

 Hello my dear friends I hope you all are doing well. In my previous blog I suggested you 3 ways to invest in GOLD. Today I will continue from there so if you didn't read my previous blog please visit here--->Previous Blog

As we all know 'GOLD' is world's one of the most precious metal, and it is always in demand because everyone trusts it. In this blog I will tell you the pros & cons of Gold MF, Gold ETF, Sovereign Gold bond. I will explain these in short and tell you the pros and cons of these so stay tuned.

And there is a special tip for you so make sure to check it out.

1) Gold MF(Gold Mutual Fund)

We know mutual fund a type of public fund where many people invest their money and the fund manager decide where to invest these money. You don't need any demat account to invest in MF .In gold mutual funds the fund manager mainly invests in gold(<99% of the fund), then the remaining money is invested in other instruments. In India the fund manager invests remaining amount in repo rate or reserve the cash. I am not going too deep in these analysis I will simply tell you the pros and cons.

Pros:

First investing in gold mutual fund you can simply start with as low as 100Rs in India.

You can simply invest in this with SIP(A Systematic Investment Plan), with this facility you can start investing regularly and in a discipline manner.

This system never cost us any making charges, or storage charges.

Also if you are in India then you don't have to pay 3% GST on it.

And whenever the gold market goes down you can simply invest lumpsum in this fund and you can get the opportunity to buy in the dip.

Mutual fund companies also give you the facility to invest in a particular date when the market usually get low and which will profit you.

With Gold mutual funds if you choose grow option then your money will get a benefit of compounding.

If somehow the asset management company got liquidated in India there is SEBI and other bodies that will protect us from any losses.

Cons:

Before investing in gold mutual funds you have to consider the best mutual fund in this segment because every mutual fund has their own fund manager and sometimes the returns on MF varies with fund manager ability. So you have to research a bit.

You cannot get a loan against it.

Mutual funds these days usually invest their funds money in their own ETFs.

Mutual funds has their own AMC(Asset Management Company) fees which is (0.10% to 1.5%), stamp duty charges. For this charges in long term sometimes our returns get lower.

Also if you withdraw your money in between 15 days to 1 year some MF charge exit load.

Mutual funds also has tax on the capital gain. If you withdraw money within 3 years then you will be taxed as per your tax slab, or if you withdraw after 3 years then you will be taxed 20%(with indexation benefit). This taxes as per Indian current Income Tax rules.

2) Gold ETFs

ETF mean Exchange Traded Fund, it is a bucket of securities that traded every trading day on exchanges. And for buying any ETF you need a demat account, for any queries regarding the demat account you can visit my blog over demat account, click on it--> Demat Account opening  .In Gold ETFs the fund manager can invest in pure gold, gold companies stock, gold mining companies etc, so you have to check the ETF's main investment instrument. Gold ETFs also has it's own pros and cons.

Pros:

Many mutual funds company directly invest in Gold ETFs, so in this case you can directly buy this from market.

ETFs cost quite lower expense ratio than gold mutual funds.

If you have a total 1KG of gold ETFs then some AMC's allow you to get home delivery without any extra cost.

ETFs never charges us any exit load so whenever you want, you can sell it.

If you invest in ETFs then you don't have to pay 3% GST.

Also you don't have to pay for making charges, storage charges and other extra cost.

In ETFs you also get the security from SEBI for any irregular problems.

Cons:

ETFs are good but sometimes it have some liquidation problems, it means if there are no buyers in the market at that time then you cannot sell your ETFs.

You cannot buy ETFs as SIP because you have to buy it by your demat account and for this you have no SIP option. Otherwise you can invest in this every month by your own.

Some AMC's gold ETF's are same price as of 1gram gold so sometimes it's difficult to buy. Therefore you have to search some lower price ETFs.

All AMC's ETFs never had same price because every AMC has their own manager and for this the returns varies with it.

ETFs cost us some charges like the mutual fund because it also managed by a fund manager. It can ETFs also has tax on the capital gain. If you withdraw money within 3 years then you will be taxed as per your tax slab, or if you withdraw after 3 years then you will be taxed 20%(with indexation benefit). This taxes as per Indian current Income Tax rules.

3) Sovereign Gold Bond(Only for India)

This is one of the best way to invest in Gold because this gives us lowest tax rate and lowest security risk, so let's check it out. Sovereign Gold Bonds(SGB) are bonds issued by the Reserve Bank of India on behalf of the Government of India.  SGBs are denominated in grams of gold. The price of each gram is linked to the value of gold with 99.9% purity. It is usually sold in grams so for buying SGB, you have to buy minimum of 1 gram of it. It matures in 8 years and a 5 years lock in period, the maturity can extend to 11 years in some cases. In a financial year RBI issues SGB five times. So let us check it's pros and cons.

Pros:

One the best thing is it is backed by RBI(Reserve Bank of India) so there is no issues with securities and all that.

You can apply this offline or online, but if you are buying this online then there are discounts on it(50Rs per gram) also some brokers give you some more offers on it.

You don't have to pay any making charges, storage charges on it.

It is a GST free bond.

And you can get a loan against it whenever you want.

Also RBI gives you 2.5% annual interest(paid semi annually) every year directly to your  bank account without any hassle.

It is a capital gain tax free bond that means when it will mature you will get full amount on the basis of market price of gold.

Cons:

SGB has a lock in period of 5 years that means you cannot sell it, and after 5 years you can sell a small amount of it.

The maximum you can buy 4Kg in a year.

The fixed rate of 2.5% interest is on the principal you invested, it never compounds with time and with gold's price.

The interest we get from it, it is taxable on your tax slab.

It has a risk of principal amount depreciation  because after 8 years the bond matures and RBI will buy back from us, and will give us the amount according to the market price of gold in that time. So in simple words if gold price fall after 8 years we will get less money. But we can wait more upto 3 years if you think this is the not the right time to sell.

Tip:

When you are buying the SGB via your demat account or if you are buying it offline and you provide your demat accounts DP number then the bond will be credited to your demat account. With this you can easily sell it in the secondary market(stock market). With this method you can easily sell it before the five years period. But if you sell this in secondary market then it will be taxable according to your tax slab, and it is considered with indexation.

As you can see here whenever the stock market crashed in 1980s,2000s,2008 the gold price dipped a little bit but survived somehow. That's why everyone must consider at least 10% of their portfolio as GOLD.

I hope this blog will help you to take a better financial decision. And don't forget to share this with your love ones. Thank you😀

See you in a next blog.

Editor:  Sk Elaf Ahmed, Rupak Chowdhury.