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Don’t buy gold, invest in gold this Diwali:

Chirag Mehta of Quantum Mutual Fund SPONSORED: In the Store
While gold jewellery is bought and used for its aesthetic value, it is ineffective as an HP 14 Core i5 8th Gen 14-inch Thin and
investment option. This is because of the loss in value on resale. Light Laptop (8GB/1TB HDD/Windows…
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ET CONTRIBUTORS | Updated: Oct 25, 2019, 10.43 AM kg), 14q cs0017TU
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₹43,990
BUY

Getty Images
By Chirag Mehta
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It’s that time of the year again when people Headphones with Alexa (Black)
flock to the streets to grab a piece of the ₹20,490
yellow metal to either add a touch of BUY

auspiciousness to Diwali or to add some

glitter to an upcoming wedding. Vivo U10 (Electric Blue, 5000 mAH 18W
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But in their eagerness, very often buyers
₹9,990
tend to splurge on gold jewellery or gold
BUY
coins by convincing themselves that they are
investing rather than spending as the value of the holding is likely to increase in the future.
While the justification isn’t entirely incorrect, it lacks some important considerations. IN THE SPOTLIGHT
Leave a tax free legacy for your
Gold jewellery – a dull investment option children with whole life insurance
plans
While gold jewellery is bought and used for its aesthetic value, it is ineffective as an
investment option. This is because of the loss in value on resale. The making charges on
gold jewellery, which typically range between 6-14 percent of the cost of gold (and may go Related Most Read Most Shared
as high as 25 percent in case of special designs) are irrecoverable. Also, the 3% GST paid
This Dhanteras, you can buy gold online using
on gold jewellery cannot be recovered on resale.
ETMONEY's GoldDeposit

Gold rate today: Gold, silver steady amid global

In this context, one may feel that gold coins and bars are better suited for investment.
uncertainties
However, it should be noted that the purchase of gold coins and bars comes at a
Freecharge joins hands with SafeGold to launch
significant premium of about 5-15% over and above the gold prices. This amount plus the
digital gold offering
GST paid remains irrecoverable on sale. Also, the lower the denomination you purchase,
the higher is the premium. Gold Rate Today: Gold declines on uptick in
equities

Smarter ways of investing in gold Gold rate today: Gold, silver trade higher ahead of
Brexit talks
Increasing awareness on the drawbacks of physical gold as an investment option has
made people switch to Gold Exchange Traded Funds (ETFs) and Sovereign Gold Bonds – Gold rate today: Gold trades lower on Trump's
remark on trade talks
the smarter ways of investing in gold.

Gold ETFs are mutual funds that invest in physical gold. Each unit of a Gold ETF Discover POWERED BY

represents 1 gram of 24 carat physical gold. Investors in Gold ETFs do not bear making Mutual Funds
charges or storage costs associated with physical gold holdings. Moreover, Gold ETFs are
traded on the exchange at the prevailing market price of physical gold, which implies that
investors can buy or sell their holdings at close to the market price, without worrying about
paying a premium on purchase or selling at a discount.
SIP starting Rs 500 Top Tax Saver
ELSS Funds
Sovereign Gold Bonds are government-backed securities denominated in grams of gold.
Investors in Sovereign Gold Bonds are assured of market price of gold at the time of
purchase and redemption.

Gold ETFs vs Sovereign Gold Bonds High Performing Mid Best Large Cap
Cap Funds Funds
At the outset, Gold ETFs and Sovereign Gold Bonds may seem similar. However, there
are a few differences which are highlighted below:

Gold ETFs Sovereign Gold Bonds

Index Funds Alternative to

Backing Backed by 24 carat Backed by government guarantee on the market price of Savings Account
physical gold gold

Interest No interest is paid
Expenses Returns in line with gold
barring expenses such as
fund management fees,
storage charges and
insurance costs
No making charges,
premiums/discounts
Investments in this scheme are eligible to earn interest
every year, payable every six months
Top Rated Multi Cap Best Balanced
Funds Funds
No management fees
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Taxation Profit on sale is taxable.
LTCG at 20% with
indexation after 3 years of
holding
Interest on the Bonds will be taxable. The capital gains tax
arising on redemption of SGB to an individual has been
exempted. The indexation benefits will be provided to long
term capital gains arising to any person on transfer of bond
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Mathematically, Sovereign Gold Bonds may seem more rewarding than Gold ETFs;
however, investors need to consider additional factors such as:

Gold ETFs
Minimum/Maximum Minimum as low as 1/2 gm
investment
Liquidity Can be sold anytime through
your broker at transparent prices
Highly liquid given the high
trading volumes on the stock
Trending in Invest
Sovereign Gold Bonds
Growth Stocks Credit Rating
How to earn money by
Minimum 1 gm. Maximum 4 kg per
investing
individual per fiscal year
How to earn money from share market ELSS Investment
Mutual FD Rates FD Interest
8 year tenure with an exit option only from funds Hike Rate
5th year onwards. Secondary market How to calculate
liquidity may be constrained by low trading Gold Saving Schemes gratuity
volumes, which means investors may have How to calculate EPF
to compromise on the value due to demand- Balance

exchange supply mismatch in the secondary market Top 10 Investment

Options PPF account
Top 10 Gold
Also, the bonds are only tradable among
ETFs
their tranches of issuance, thus further
Where to invest money for less than 1
limiting liquidity
year
How to open NPS
Resale Value Investors can expect resale value Though SGBs are based on market value, Account
to mirror the market price of resale price can be impacted in absence of Senior Citizens Savings Schemes
physical gold much demand as the bonds are non- EPF Passbook Tips to buy Gold
fungible for physical gold or cash before a Download Bars
period of 5 years Short-term Investment
Options

Availability Easy availability owing to high Availability depends on issuances by the

trading volumes government.

Although the bonds are traded in the

secondary market, availability may still be
 an issue in case of low trading volumes.

Systematic Investors can make systematic
purchase option purchases, which mean they can
invest a fixed amount of money
at regular intervals with an aim to
reduce the average cost of their
investment over the long term.
The option to make systematic purchases is
easily not available at present. It will
depend on government issuances or
liquidity on the stock exchanges.

Systematic purchases can be

made by buying on the exchange
or through gold mutual funds that
invests in the Gold ETF.

To summarize, the inefficient preference for holding physical gold has prevented investors
from optimizing their gold investments. Not only do you end up paying a high price for this
obsession (in the form of taxation, storage costs, making charges, high premiums,
discounted resale values), but it is also prone to impurities and theft.

Financial forms like gold ETFs and SGBs are more efficient avenues for investment, with
the ETF scoring over the SGB thanks to its 24 carat physical gold backing.

(Chirag Mehta, Fund Manager - Alternative Investment, Quantum Mutual Fund)

(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here
do not reflect the views of www.economictimes.com.)

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Read more on Gold Mutual Fund Chirag Mehta Quantum Mutual Fund
News

Mutual Funds Diwali Gold Etfs

Sovereign Gold Bonds

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