India is a country where the craze for gold never dies. Indians have been using gold since 3900 BC. Today, India is the second largest gold consuming country in the World, with China being the first. It is estimated that over 16,000 tonnes of gold are stored in Indian households, in the form of gold jewelry which roughly totals Rs 28 Lakh Crores, almost double the foreign exchange reserves held by the Reserve Bank of India. With extensive usage of gold, you must keep the below mentioned points in mind while investing in gold:
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1) Forms of buying gold:
Investors must be aware on the various forms of buying and investing in gold. Buying gold jewelry is the traditional form of investment in India. Having gold jewelry can be considered as equivalent to hard cash, this is because gold is highly liquid in nature, and can be easily transacted in the market. You would lose a sizeable amount in making charges, and some gold will be wasted during making of gold jewelry.
Gold coins from banks are the next popular investment related to gold in India. Banks charge premiums on gold coins. These gold coins do not offer liquidity of the level of jewelry; this is because banks don’t buy-back the gold coins.
Buying gold bullion bars is a very good investment. Not everyone can afford to invest on gold bullion bars as the minimum investment is quite high.
Gold Exchange Traded Funds (ETFs): This is a very good option of late. These funds are basically mutual funds which track gold prices. These funds are performing well thereby gaining popularity each day. The funds maintenance charges are low.
See Also: Gold Savings Schemes
2) Current Income: There is no constant income that you would get by investing in gold. It’s considered an ideal investment. If you hold gold in the physical form, you will have to keep on paying for lockers. So, you must remember that you don’t earn returns just like other investment options.
3) Capital Appreciation: Traditionally, gold is the main hedge against inflation. Gold does not offer good returns. Real Estate and Equity Shares offer much better returns vis-a-vis gold. You must remember that investment in real estate and shares is risky. Investment in gold comes in handy when the markets are falling. Gold investments come in as a boon when the inflation is very high.
4) Risk: Investing in gold does not have much of a risk in India. The actual risk involved behind investing in gold is that you might earn lower returns when the other investment options offer higher returns.
5) Liquidity: Physical gold offers high liquidity. If you have gold jewelry, then you can get cash within few minutes. Banks offer instant gold loans. You can sell gold jewelry at any gold pawn shops. Physical gold can be considered as equivalent of having hard cash in hand. You must keep in mind that you would lose a good amount due to making and wastage charges.
6) Tax Treatment: Buying gold or investing in gold does not have any tax benefits. Gold is taxed for capital gains as per IT act. It is advisable to ask for a bill for each and every gold purchase. Most gold jewel transactions happen without a bill in India.
7) Convenience: It is highly convenient to purchase and sell gold as it offers high liquidity. The emergence of gold ETFs have made it convenient to buy and hold gold for short term gains. Emergence of Muthoot Finance, Manappuram Finance Limited and other Companies have enabled individuals to avail hassle-free gold loans.
See Also: Gold Investment In India
Gold is traditionally a hedge against inflation. Investing in gold might not offer higher returns but the investment is safe, unlike other investment options like real estate and equity shares. Physical gold is highly liquid and can be considered as an equivalent of having physical cash in India. Physical gold comes in handy when you are in need of money.
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