Egold Investment Guide For Indians: Getting Started

Gold has been a symbol of wealth and prosperity since ancient times and is considered a smart investment option to hedge portfolios and protect against market fluctuations. In India, gold is the favourite investment option for many, as it has outperformed the equity market and real estate over the last 10 years. Gold investments in India are not just limited to buying gold in its physical form; there are several other ways to invest in gold, such as E-gold, gold funds, Exchange-Traded Funds (ETFs), and Sovereign Gold Bonds.

Gold ETFs (Exchange Traded Funds)

Gold ETFs (Exchange-Traded Funds) are a modern way to invest in gold, similar to buying physical gold but without the hassle of storing it. With Gold ETFs, you buy proportionate ownership in a collective vault instead of buying physical gold. 1 Gold ETF is equivalent to 1 gram of gold.

Gold ETFs are traded on stock exchanges just like shares, and they primarily feature physical gold and stocks of gold mining/refining companies as their underlying assets. They are a good option for investors who want to avoid the risk of theft or burglary associated with physical gold.

To invest in Gold ETFs, you need to have a Demat account. There are asset management and brokerage fees involved, and the price of gold directly affects the price of Gold ETFs.

Gold ETFs are best suited for investors interested in intraday trading and those who don't need the funds in the short term. They are a liquid investment option and can be easily bought and sold.

Gold Mutual Funds

There are three main types of gold funds:

• Gold ETFs (Exchange-Traded Funds): These funds invest directly in physical gold and are ideal for investors who want to invest in bullion but don't want the hassle of storing it securely. A demat account is required to invest in Gold ETFs.
• Gold Mining Funds: These funds invest in companies involved in gold mining. Returns depend on the performance of these companies.
• Gold Fund of Fund: These funds invest in units of Gold ETFs, and investors do not need a demat account to purchase them.

• Exposure to Gold: Investors can gain exposure to gold without physically purchasing and storing bullion.
• Hedge Against Inflation and Uncertainty: Gold funds can act as a hedge against inflation and economic uncertainty.
• Diversification: Gold is a non-correlated asset, helping to reduce overall investment risk.
• Liquidity: Gold funds can be easily bought and sold, providing flexibility and liquidity.
• Low Cost: Gold funds may avoid various charges associated with physical gold, such as making charges and GST.
• Safety: Regulated by the Securities and Exchange Board of India (SEBI), gold funds are considered a safe investment option.

When selecting a gold mutual fund, investors should consider factors such as the fund's performance track record, the expertise of the fund manager, investment strategy, and liquidity.

Sovereign Gold Bonds

The Sovereign Gold Bond Scheme (SGB) was launched by the Government of India in November 2015 under the Gold Monetisation Scheme. The bonds are restricted for sale to resident Indian entities, including individuals, Hindu Undivided Families (HUFs), Trusts, Universities, and Charitable Institutions. Know-your-customer (KYC) norms are the same as those for the purchase of physical gold, and KYC documents such as Voter ID, Aadhaar card/PAN or TAN/Passport are required.

The minimum permissible investment is 1 gram of gold, and the maximum limit of subscribed gold shall be 4 kg for an individual, 4 kg for HUF, and 20 kg for trusts and similar entities per fiscal year (April-March) notified by the Government from time to time. The annual ceiling will include bonds subscribed under different tranches during the initial issuance by the Government and those purchased from the Secondary Market.

The investors will be compensated at a fixed rate of 2.50% per annum, payable semi-annually on the nominal value. The redemption price will be in Indian Rupees based on the simple average of the closing price of gold of 999 purity of the previous 3 working days published by the Indian Bullion and Jewellers Association Ltd. (IBJA). The interest on Gold Bonds shall be taxable as per the provision of the Income Tax Act, 1961 (43 of 1961). The capital gains tax arising on redemption of SGB to an individual has been exempted. The indexation benefits will be provided for long-term capital gains arising to any person on the transfer of the bond.

Digital Gold

The taxation of digital gold depends on the holding period. If the holding period is less than three years, short-term capital gains tax will apply, and gains will be taxed as per the income tax slab. If the holding period is more than three years, long-term capital gains tax will apply, and gains will be taxed at 20% plus a surcharge and cess.

Physical Gold

Gold has been a symbol of wealth and prosperity since ancient times and is considered a robust model of investment. It is a favourite investment option in India, as it has outperformed the equity market and real estate over the last 10 years.

• Making/designing charges, which can make purchases expensive
• Storage expenses due to security and insurance requirements
• Inconvenience in selling due to possible impurities and the requirement of origination and purity certificates
• High risk of theft and burglary
• Paperwork and documentation requirements

However, there are some benefits to investing in physical gold. For example, there is minimal risk of forgery, and it can be easily liquidated in times of need.

Digital Gold

Digital gold is an alternative to physical gold investments. It is purchased through various apps, with denominations starting from 1 gram onwards. Every investment is backed by a 24K physical gold investment. The minimum investment amount is low, making it an attractive option for new investors. However, digital gold in India is not regulated by any government authority, and there are only a few players in the market, increasing the overall risk.

Gold Sovereign Bonds

Gold Sovereign Bonds are issued by the Reserve Bank of India and are considered one of the best ways to invest in digital gold. They offer a guaranteed interest rate of 2.5% per annum and do not have any visible expenses. The bonds have a maturity period of 8 years, with an exit option from the fifth year onwards. The redemption of these bonds at maturity is tax-free, making them a profitable way to invest in gold.

Gold ETFs and Gold Mutual Funds

Gold ETFs (Exchange-Traded Funds) and Gold Mutual Funds are modern ways of investing in gold that have gained popularity. Gold ETFs are similar to buying physical gold, but the investor does not have to carry or store the actual gold. Gold Mutual Funds, on the other hand, involve investing in companies engaged in gold mining. These options have lower risks of theft and burglary compared to physical gold and are regulated by SEBI. However, they involve asset management and brokerage charges, which can reduce overall returns.

Frequently asked questions