Gold on track to surpass Rs 65,000; 2 prudent ways one can invest

At a time when the COVID-induced pandemic has set major economies on a contraction mode, the amazing rally of gold has been a subject of keen interest.

Registering a remarkable performance in the first half of 2020, surging by around 25 percent from its March lows, the yellow metal has outperformed several asset classes, by a significantly long margin.

Indian love for the precious metal is well-known, and it will not be a surprise if the majority of Indians indulge in investing in this asset, in physical form during the festive season, despite its skyrocketing prices.

It has already crossed the Rs 50,000 mark and may touch Rs 65,000 per 10 gram by year-end, thanks to the fiscal stimulus from the government and low-interest rates.

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Rahul Jain

EVP|Edelweiss Wealth Management

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Though equity markets have rebounded sharply, the security offered by gold in these testing times has bolstered investor appetite for the yellow metal.

If you wish to park your money in this asset glass to cushion yourself against volatility, let’s see how you can do it prudently.

Avoid Physical Gold

For centuries, investment in gold has majorly been in physical form through jewellery, coins and bars, among others.

This mind-set has not changed much. In reality, investing in physical gold provides a false sense of comfort and doesn’t add any real value to your wealth.

The investment drive is primarily fuelled by the fact that physical gold is a tangible asset that can be worn or displayed. Having said that, there are several latent issues that make a physical investment in gold, non-lucrative.

There are concerns over high making charges and storage costs. Resale value is comparatively low, and purity check is a major area of concern.

Thankfully, there are alternatives available that not only filter these issues but also bring about discipline in gold investment.

Investment Via Sovereign Gold Bonds

Issued by the government at regular intervals, sovereign gold bonds (SGBs) offer an annual interest of 2.5%, paid semi-annually. They have a fixed tenure of eight years, though you can sell them after the lock-in period of 5 years.

If held until maturity, you need not pay any capital gains tax on investment. Also, TDS is not applicable on the interest paid.

Apart from adding to your wealth, you can also pledge SGBs as collateral, to avail loans when needed. Offering multiple benefits, if you are willing to participate in gold investment for the long-term, SGBs are the best avenue to do so. Investment Through Gold Exchange-Traded Fund

Gold Exchange-Traded Fund or ETF is a cost-effective way of owning gold that you can buy or sell on exchanges. As the benchmark is physical gold, you can purchase it close to its prevalent price.

The minimum investment can be for as low as 1 gram of gold, and you can also set up a systematic investment plan (SIP) rather than investing in a lump sum.

Gold ETFs held for more than 3 years are subject to long-term capital gains tax with 20 percent indexation benefit. As they are held in electronic format, purity is not a concern and because of direct gold pricing, there’s complete transparency in holdings.

The Final Word:

The sharp uptick in gold prices makes long-term returns from gold, look lucrative. In an economic environment that’s still volatile and uncertain, this is the opportune time to invest in gold.

With major central banks pumping money into economies to avert recession and ongoing geopolitical developments, the yellow metal has once again reinforced its status as a safe investment. Happy investing!

(Rahul Jain is Head Edelweiss Wealth Management)

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.