Investing in Gold 101 - A handbook on why, and how to invest in Gold



Aug 8, 2023

Have you just started investing, and are on a high watching your money grow? Are you constantly looking out to take more risks and build your wealth? Then, girl, we need you to hold your horses, 'cause you're about to get schooled! 

Yes, it's exhilarating to be on the edge, have your ears hooked on to any word you get regarding your investments. It's a lot like being 18 again; at the precipice of something big and life altering. But...let us be the first to burst your bubble. You're probably not going to end up with 100 odd shares of a small company that’ll grow big, like Apple or MRF tyres, and become a millionaire overnight. 

What you need is an investment plan, so that you have a diverse investment portfolio. One that potentially allows you to reduce risks, but gives you higher returns. 

How do you make that happen? 👀

Consider investing in Gold. 

But, why should you, a Gen Z/ Millennial, with a great risk appetite invest in Gold? ✨

Picture this: You're on a financial rollercoaster, and your heart is pounding with uncertainty. Tragedy strikes in the form of a pandemic, and down the drain goes a good number of your investments. 

Here steps in Gold, to the rescue as the ultimate hedge against inflation, and the ever present unpredictability life offers. It's the super heroine that balances out your investment portfolio and saves the day.

While it doesn't give you cash flow like your favourite stocks or bonds, it, however, feeds off stress from other asset classes, especially equity and debt. When the world goes bonkers, like during the global financial meltdown or the pandemic (yup, we're looking at you, Covid-19), gold steps up its game and becomes the go-to safe haven for investors!

How do you get your hands on Gold? 🪙

‘Au’ yeah, we're glad you're looking to brighten up your investment 'folio.  So, let's sneak a peek into how to make this possible for you! 

The good news: there are a LOT of ways you can invest in Gold. 

  1. Gold Exchange-Traded Funds (ETFs)
    A Gold ETF is basically a unit representing physical gold that can be bought and sold like regular stocks. They let investors own gold in a dematerialised form. The ETFs don't just provide convenience in terms of liquidity and transparency (since you can't be scammed into buying fake gold), they also offer lower costs compared to physical gold.

  2. Gold Mutual Funds:
    These are mutual funds that allow investors to invest in gold reserves. Generally, these are open-ended funds that invest in various forms of gold, including physical gold and gold ETFs.

  3. Sovereign Gold Bonds (SGBs):
    SGBs are government-issued securities denominated in grams of gold. They offer a fixed interest rate along with the potential for capital appreciation based on the gold price movement. SGBs come with a specified tenure and can be traded on stock exchanges.

  4. Digital Gold
    The most recent, and a super convenient, way to invest in gold. Investors can purchase gold online in smaller denominations. The purchased gold is stored in secure lockers on behalf of the investor by authorised gold banks, or through authorised digital gold platforms like SafeGold. Digital gold offers convenience, cost-effectiveness, and maximum flexibility. Note that digital gold is not a regulated investment.

P.S., If you're looking for THE most convenient way to build your own portfolio, without emptying your pockets, click here ;)

How is Gold taxed? 🧐

Now that we're clear on the multiple ways you can invest in gold, let's peel the layer further and look into how gold investments are taxed. 

  1. Taxation on Buying Physical Gold:
    When buying physical gold in the form of jewellery, coins, or bars, 3% GST is charged on purchases.

  2. Taxation on Selling Physical Gold:
    If you sell physical gold within three years of purchase, any gains will be treated as Short-Term Capital Gains (STCG) and will be added to your taxable income. Short-term capital gains on gold are taxed according to your income tax slab.

    If the gold is held for more than three years, it's considered as Long-Term Capital Gains (LTCG). 20% of the returns you receive will be taxed, along with 4% cess, with indexation benefits.

  3. Taxation on Digital Gold:
    Digital gold investments are taxed similar to physical gold. Any gains made on the sale of digital gold within three years are treated as STCG and taxed according to the individual's income tax slab.

    After three years, gains are considered LTCG and taxed at 20%, along with 4% cess, with indexation benefit.

  4. Taxation on Gold ETFs and MFs:
    Gold ETFs are treated as non-equity mutual funds for tax purposes. If the units are sold within three years, the gains are considered STCG and taxed according to the individual's income tax slab.

    If held for more than three years, the gains are considered LTCG and taxed at 20%, along with 4% cess, with indexation benefit.

  5. Taxation on SGBs:
    SGBs come with a lock-in period of 5 years. If you redeem them after maturity, i.e., once the 5th year mark has crossed, no capital gain tax will apply. If you sell before its maturity, then your gains are taxed at 20%, along with 4% cess, with indexation benefit.

Gold has stood the test of time as a valuable investment. Whether you go digital, traditional, or mix it up, consider allocating 5-10% of your portfolio to Gold investments to build a well-rounded investment strategy!  

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