Dec 05, 2012, 10.46 AM | Source: CNBC-TV18
Personal finance expert Anil Rego of Right Horizons outlined the pros and cons of investing in E-gold and gold ETFs.
Anil Rego (more)
CEO & Founder, Right Horizons | Capital Expertise: Mutual Funds ,Tax ,Property
He expects gold to perform well for some more time, so he suggets investing in gold but in a systematic basis - through a gold mutual fund or E-Gold.
Below is the edited transcript of his interview on CNBC-TV18.
Q: Investment in gold appears to be in flavour. Which is a better form of holding them, is it E-gold or gold ETFs? What E-Gold actually means? Could you give us the tax implications for both?
A: E-Gold is basically provided through the National Spot Exchange platform, which is a different platform different from that of the National Stock Exchange. Any broker who is affiliated to this exchange would be able to provide the investor E-Gold.
One needs to have a demat account with that broker so that you can buy E-Gold like you would buy a stock. E-Gold is very similar to what an ETF is. The question is when to choose E-Gold? When to choose gold ETF? E-Gold is much cheaper form of investment but the disadvantage is that it is tax inefficient.
The holding period for long-term capital gains is one year for gold ETF whereas for E-Gold it is three whole years. Gold ETFs offer you a flat slab of 10 percent capital gains which is not available for E-Gold; they only have 20 percent after indexation for inflation based on the cost inflation index.
If one is looking at very long-term then E-Gold is a good option to use. E-Gold has an easy ability to convert to physical gold, so it could be used if you want to take it out in physical gold. If one is looking at shorter term then gold ETF would probably be a better option.
Q: Since gold is trading upwards of Rs 31,000 per 10 grams is it still prudent to invest in gold or should one wait for a dip? Could you also tell us which gold fund should one invest in?
A: In turbulent times, gold is a good asset to have and it is also complimentary to your equity portfolio. If you are an equity investor, gold helps reduce your risk because while equity markets are doing badly, gold ends up doing well. Apart from that, today the government debt across the world is very significant and at very high level, so gold is one commodity that is an alternative to government bonds.
Gold should continue to do well for some more time. Considering that gold has already run up reasonably, I would suggest investing in gold, in a systematic basis. You can do it either through a gold mutual fund and the other option is E-Gold.