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Gold Investment in India: Coins or Bars?

Ramalingam

Ramalingam Kalirajan  |7628 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 24, 2024

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more
Asked by Anonymous - Jul 01, 2024Hindi
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Hello, Hope you are doing well. I would like to know in India is it good to buy and keep Gold coins or bars? Is there any tax/ capital gain during the sale of gold coin or bar? Which is better gold coin or bar?

Ans: Gold is a popular investment in India. It offers a hedge against inflation and economic uncertainty. Let's discuss the pros and cons of investing in gold coins and bars.

Advantages of Gold Coins
Portability: Gold coins are easy to store and transport.

Smaller Denominations: Coins can be purchased in small amounts, making them accessible for small investors.

Design and Collectibility: Coins often have unique designs and can be collectible.

Advantages of Gold Bars
Lower Premiums: Gold bars generally have lower premiums over the spot price compared to coins.

Bulk Investment: Bars are ideal for larger investments as they come in higher denominations.

Storage Efficiency: Bars take up less space compared to an equivalent value in coins.

Tax Implications
Capital Gains Tax: Selling gold coins or bars is subject to capital gains tax. The rate depends on the holding period.

Short-Term Gains: If held for less than 36 months, gains are taxed as per your income tax slab.

Long-Term Gains: If held for more than 36 months, gains are taxed at 20% with indexation benefits.

Wealth Tax: Wealth tax on gold was abolished in 2015.

Investing in Gold Funds
Gold funds are an excellent alternative to physical gold. They offer several advantages over gold coins and bars. Let’s explore why gold funds might be a better choice for you.

Advantages of Gold Funds
Liquidity: Gold funds are highly liquid. You can buy or sell units easily.

No Storage Issues: Unlike physical gold, gold funds don't require physical storage or security.

Diversification: Gold funds often invest in a diversified portfolio of gold-related assets, including gold mining companies.

Ease of Investment: Investing in gold funds is straightforward and can be done through mutual fund platforms or online brokers.

Professional Management: Fund managers handle the investment decisions, offering expertise and research that might be hard to manage individually.

Tax Implications of Gold Funds
Capital Gains Tax: Similar to physical gold, gold funds are subject to capital gains tax.

Short-Term Gains: If held for less than 36 months, gains are taxed as per your income tax slab.

Long-Term Gains: If held for more than 36 months, gains are taxed at 20% with indexation benefits.

No Wealth Tax: Wealth tax on gold funds was also abolished in 2015.

Comparing Gold Funds with Physical Gold
Convenience: Gold funds eliminate the need for physical storage and security concerns.

Transparency: Fund performance is tracked through NAVs (Net Asset Values), making it easier to monitor your investment.

Cost-Effective: Gold funds usually have lower transaction costs compared to buying physical gold.

Diversification: Provides exposure to gold without the risks associated with holding physical gold.

Final Insights
Investment Convenience: Gold funds offer ease of investment and liquidity without physical storage hassles.

Tax Efficiency: Capital gains tax applies, but gold funds manage this efficiently with transparent reporting.

Professional Management: Benefit from professional management and research when investing in gold funds.

Diversification: Consider gold funds for diversification and to avoid the challenges of physical gold.

Gold funds can be a practical choice if you want exposure to gold without the complexities of holding physical gold. Consult with a Certified Financial Planner to align your investment with your financial goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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Sanjeev

Sanjeev Govila  | Answer  |Ask -

Financial Planner - Answered on Sep 20, 2023

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@Anil Rego ji Namaskar - Intend to invest in gold bond, how should i proceed and which way is better to invest in gold bond ! i intend to invest in paper gold bond rather then purchasing gold physically. plz advise.
Ans: Gold can be a valuable addition to your portfolio. It has always been considered an asset that can hedge against inflation and other economic uncertainties. There are three popular ways to invest in gold.

Gold ETFs (Exchange-Traded Funds): Gold ETFs offer easy liquidity, as they are traded on stock exchanges just like stocks. They provide a direct exposure to the price of gold.
Taxation - Profits on the sale/redemption of Gold ETFs or units of gold saving funds bought after 31st March 2013 will be taxed as short capital gains irrespective of the holding period. So, this will be taxed as per an individual’s current tax slab.

Gold Mutual Funds: Gold mutual funds pool investments from multiple investors and provide professional fund management. They are an excellent choice for those who prefer a diversified approach.
Expense ratios and load fees can vary.
It is advisable to keep the investment in gold within 5% to 10% of one’s total investment portfolio.
Taxability is similar to that of Gold ETFs.

Sovereign Gold Bonds (SGBs): SGBs are issued by the Government of India and they provide an additional annual interest income. SGBs are suited for long-term investors who are looking for a safe haven asset and are willing to hold on to their investment for at least 5 years, preferably full 8 years to get the tax advantage of Zero capital gains tax on gains made.
The returns on SGBs are not guaranteed, and they depend on the prevailing market price of gold at the time of sale. There is a lock-in period of 5 years, so you cannot exit your investment before then.

SGBs may be the right choice. If liquidity and trading flexibility are important, consider Gold ETFs. Gold mutual funds are suitable for diversification, doing SIPs and professional management.

..Read more

Ramalingam

Ramalingam Kalirajan  |7628 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Apr 17, 2024

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Thank you. I have a follow up question about purchasing gold coins for investment. The seller imposes making charges and GST when purchasing gold coins and this reduces the returns on gold coins when you sell it. What is your recommendation to include gold in the portfolio and what percentage of investments should be in gold? Thanks
Ans: Including gold in your investment portfolio can offer diversification and act as a hedge against inflation and market volatility. However, the costs associated with purchasing and storing physical gold, such as making charges, GST, and safe storage costs, can impact your returns. Here are some recommendations on how to include gold in your portfolio and the suggested percentage allocation:

Gold ETFs or Gold Mutual Funds:

Advantages: Gold ETFs (Exchange Traded Funds) and Gold Mutual Funds offer a cost-effective way to invest in gold without incurring making charges or GST.
Allocation: Consider allocating 5-10% of your investment portfolio to gold ETFs or Gold Mutual Funds to diversify your portfolio and mitigate risks.
Gold Savings Fund:

Advantages: Gold Savings Funds invest in gold ETFs and offer the convenience of SIP (Systematic Investment Plan) investments. They also provide the benefit of professional fund management.
Allocation: You can allocate a portion of your monthly SIP towards Gold Savings Funds to accumulate gold over time.
Sovereign Gold Bonds (SGBs):

Advantages: SGBs are government-backed securities denominated in grams of gold. They offer an annual interest rate and capital gains tax benefits if held until maturity.
Allocation: Consider investing in SGBs as part of your fixed income allocation, keeping in mind the lock-in period and liquidity constraints.
Physical Gold Coins or Bars:

Advantages: Physical gold offers tangible ownership and can be a part of your emergency reserve or long-term wealth preservation strategy.
Allocation: If you prefer physical gold, limit the allocation to a smaller percentage (e.g., 1-2% of your portfolio) due to the additional costs and liquidity constraints.
Recommendations:

Diversification: Include gold as a part of your diversified investment portfolio to mitigate risks and enhance overall returns.
Cost Consideration: Opt for cost-effective investment options like Gold ETFs, Gold Mutual Funds, or Gold Savings Funds to avoid high making charges and GST.
Asset Allocation: Maintain a balanced asset allocation based on your risk tolerance, investment goals, and time horizon. A typical allocation to gold ranges from 5% to 10% of the total portfolio.
Regular Review: Periodically review your investment portfolio and rebalance as needed to maintain the desired asset allocation and align with your financial goals.
Consult with a financial advisor to determine the most suitable allocation to gold based on your individual financial situation, goals, and risk tolerance. They can provide personalized recommendations and guidance to help you make informed investment decisions.

..Read more

Ramalingam

Ramalingam Kalirajan  |7628 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 20, 2024

Asked by Anonymous - May 20, 2024Hindi
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I'm 31 years old and want to invest in gold as a part of diversification. Is it wise to invest in gold like our purchasing goldbars/biscuit or as a complete product like chain or necklace. Thanks in advance
Ans: Investing in gold can be a valuable addition to your portfolio for diversification and wealth preservation. Let's explore the pros and cons of investing in gold bars/biscuits versus gold jewelry.

Acknowledging the Need for Diversification
It's great to see your interest in diversifying your investment portfolio at a young age, reflecting your commitment to financial stability and growth.

I understand the importance of exploring different investment options like gold to hedge against economic uncertainties and inflation.

Evaluating Gold Investment Options
Gold Bars/Biscuits: Investing in physical gold in the form of bars or biscuits offers liquidity and ease of storage. You can buy and sell gold bars/biscuits easily through authorized dealers or bullion exchanges.
Gold Jewelry: While gold jewelry has aesthetic value, it may not be the most efficient form of investment due to additional costs like making charges and potential loss of value due to fashion trends or wear and tear.
Advantages of Gold Bars/Biscuits
Purity and Value: Gold bars/biscuits are typically of high purity and standard weight, making them easily tradable and recognizable in the market.
Investment Focus: Investing in gold bars/biscuits allows you to focus solely on the investment aspect without being influenced by aesthetic preferences or fashion trends.
Disadvantages of Gold Jewelry
Additional Costs: Gold jewelry incurs additional costs like making charges, which can reduce your overall returns compared to investing in gold bars/biscuits.
Subject to Wear and Tear: Jewelry is susceptible to wear and tear over time, which may affect its resale value and add to maintenance costs.

While both options offer exposure to the gold market, investing in gold bars/biscuits is generally more conducive to investment purposes due to their purity, liquidity, and ease of storage. However, it's essential to consider your personal preferences and financial goals when making investment decisions.

Evaluating SGBs and Gold Funds
Sovereign Gold Bonds (SGBs): SGBs are government-backed securities denominated in grams of gold. They offer the combined benefits of gold investment and fixed interest income.
Gold Funds: Gold funds invest in a diversified portfolio of gold-related assets such as physical gold, gold ETFs, and mining stocks. They provide exposure to the gold market without the hassle of owning physical gold.
Advantages of SGBs
Safety and Security: SGBs are issued by the government, making them a safe and secure investment option compared to other forms of gold investment.
Interest Income: In addition to potential capital appreciation, SGBs offer a fixed interest rate on the invested amount, providing an additional source of income.
Advantages of Gold Funds
Professional Management: Gold funds are managed by experienced fund managers who make strategic investment decisions to maximize returns and mitigate risks.
Liquidity and Convenience: Investing in gold funds offers liquidity and convenience, allowing you to buy and sell units easily through the stock exchange.
Considerations for Investment
Risk Tolerance: Assess your risk tolerance and investment objectives to determine the most suitable gold investment option for your portfolio.
Diversification Benefits: Consider how adding SGBs or gold funds complements your existing investments and contributes to portfolio diversification.
Conclusion
By incorporating Sovereign Gold Bonds (SGBs) and Gold Funds into your investment strategy alongside physical gold, you can enhance portfolio diversification and capitalize on the potential benefits of investing in gold.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

Latest Questions
Ramalingam

Ramalingam Kalirajan  |7628 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jan 24, 2025

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Hello, I want a monthly withdrawal of 2lakh through SWP. Give me the amounts and expect ROI for various instruments that I should use. Also what factor to consider as I would be able to invest those amount lets say after a year.
Ans: To achieve a sustainable monthly withdrawal of Rs. 2 lakh (Rs. 24 lakh annually), we need to identify the right mix of investments and expected returns. Let us create a detailed framework.

1. Factors to Consider Before Investing
Time Horizon: You plan to start investing after a year. This delay impacts your compounding benefit, but planning ahead mitigates it.

Expected Rate of Return (ROI): Different instruments offer varied returns. Diversification ensures both growth and stability.

Withdrawal Feasibility: Sustainable withdrawals depend on balancing withdrawals with corpus growth.

Inflation Impact: Investments must generate returns above inflation to preserve corpus value.

Risk Appetite: Choose instruments aligning with your comfort towards volatility.

Tax Efficiency: Optimise your withdrawals and investments for better post-tax returns.

2. Expected ROI for Investment Options
Here is the expected ROI and rationale for different asset classes:

Actively Managed Equity Mutual Funds

Allocation: 50% of the corpus
Expected ROI: 12% annually
Rationale: These funds provide high returns and help beat inflation over the long term.
Debt Mutual Funds

Allocation: 30% of the corpus
Expected ROI: 7% annually
Rationale: These offer stability with moderate returns and are suitable for regular withdrawals.
Fixed-Income Instruments (e.g., FDs, SGBs)

Allocation: 15% of the corpus
Expected ROI: 6-7.5% annually
Rationale: Secure returns with no market risk. Ideal for stability.
Liquid Mutual Funds

Allocation: 5% of the corpus
Expected ROI: 4-5% annually
Rationale: Quick access for emergencies or interim cash flow needs.
3. Corpus Required for Rs. 2 Lakh Monthly Withdrawal
Corpus Based on ROI
At 8% ROI: A corpus of Rs. 3 crore is required.
At 9% ROI: A corpus of Rs. 2.66 crore is required.
At 10% ROI: A corpus of Rs. 2.4 crore is required.
The corpus requirement reduces with higher returns but increases risk exposure.

Building the Corpus Over One Year
If the funds are idle for a year, invest them in liquid mutual funds temporarily. These yield 4-5% with low risk.
Use Systematic Transfer Plans (STPs) to gradually move funds into equity and debt over 12-18 months.
4. Investment Plan for SWP
Equity Mutual Funds (50% Allocation)
Allocate Rs. 1.5 crore to equity funds.
Delay SWP for at least three years to allow growth.
Equity funds ensure high long-term returns, reducing inflation's impact.
Debt Mutual Funds (30% Allocation)
Allocate Rs. 90 lakh to debt funds.
Start SWP immediately from this portion.
These funds provide stable returns and low volatility.
Fixed-Income Instruments (15% Allocation)
Allocate Rs. 45 lakh to secure instruments like FDs or Sovereign Gold Bonds.
Use these funds for stability and emergencies.
Liquid Mutual Funds (5% Allocation)
Allocate Rs. 15 lakh to liquid funds.
Use these funds for interim liquidity needs and to manage cash flow gaps.
5. Steps for Efficient Withdrawal
Start withdrawals from debt and liquid funds first. Let equity funds grow for 3-5 years.
Monitor returns annually to adjust the withdrawal rate or asset allocation.
Keep a buffer of 1-2 years' expenses in liquid funds for emergencies.
Review the tax efficiency of your withdrawals and rebalance your portfolio every year.
Final Insights
A well-diversified portfolio ensures stable withdrawals of Rs. 2 lakh monthly. Focus on equity for growth, debt for stability, and liquid funds for emergencies. Starting the plan early and monitoring it regularly will ensure financial independence.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

...Read more

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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