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:  

• Sovereign Gold Bond scheme are an option to diversify your portfolio. However, on account of your age, you need to evaluate whether it is suitable to you, due to long tenure of the bond/low liquidity on the exchange.
• Interest income is taxable as per your tax slab. On redemption, the capital gains tax applicable to an individual is exempted. Also, one can avail of indexation in case of long-term capital gains.

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.

Ans: This requires a detailed explanation. I had written a detailed article on this gold taxation aspect. Please check it here - https://stableinvestor.com/2020/06/taxation-gold-capital-gains.html

Ans: When considering investments for the long term, it's essential to weigh the pros and cons of each asset class based on your financial goals, risk tolerance, and market outlook. Here's a comparison between shares (equities) and gold:

Shares (Equities):

Potential for Growth: Historically, equities have provided higher returns over the long term compared to other asset classes such as gold. Investing in shares allows you to participate in the growth of businesses and economies.
Higher Risk: Equities are more volatile than gold and are subject to market fluctuations, economic conditions, and company-specific factors. However, over the long term, the risk of investing in diversified equity funds can be mitigated through proper asset allocation and diversification.
Dividend Income: Many companies distribute dividends to shareholders, providing additional income in the form of dividends.
Inflation Hedge: Equities can serve as a hedge against inflation as companies have the potential to increase prices and earnings over time.
Gold:

Safe Haven Asset: Gold is often considered a safe haven asset during times of economic uncertainty or market turmoil. It tends to retain its value and may even appreciate during periods of market volatility.
Diversification: Adding gold to a diversified investment portfolio can help reduce overall portfolio risk, especially when other asset classes such as equities are experiencing downturns.
Lack of Income: Unlike equities, gold does not generate income in the form of dividends or interest. Its value primarily depends on supply and demand dynamics and investor sentiment.
Limited Growth Potential: While gold can serve as a store of value, its long-term growth potential may be lower compared to equities.
In summary, both shares (equities) and gold have their place in a well-diversified investment portfolio. For long-term wealth accumulation, investing in diversified equity funds offers the potential for higher returns, albeit with higher volatility. It's essential to assess your risk tolerance, investment horizon, and financial goals before making investment decisions.

When considering long-term investments, diversified equity mutual funds are generally preferred over both individual stocks and gold for several reasons:

Diversification: Equity mutual funds pool money from multiple investors to invest in a diversified portfolio of stocks across different sectors and market capitalizations. This diversification helps spread risk and reduces the impact of volatility compared to investing in individual stocks.

Professional Management: Equity mutual funds are managed by experienced fund managers who conduct in-depth research and analysis to select and manage the portfolio of stocks. Their expertise can potentially lead to better investment decisions compared to individual investors.

Liquidity: Mutual funds offer high liquidity, allowing investors to buy or sell units at net asset value (NAV) on any business day. This liquidity makes it easy to enter or exit investments, providing flexibility based on changing financial goals or market conditions.

Cost-effective: Investing in equity mutual funds is cost-effective compared to directly investing in individual stocks, especially for small investors. Mutual funds spread transaction costs and management fees across a large investor base, resulting in lower overall expenses.

Risk Management: Mutual funds typically offer different categories based on risk profiles, such as large-cap, mid-cap, small-cap, or multi-cap funds. Investors can choose funds that align with their risk tolerance and investment objectives, allowing for effective risk management.

Regulatory Oversight: Mutual funds are regulated by the Securities and Exchange Board of India (SEBI), providing investors with regulatory oversight, transparency, and investor protection measures.

Considering these factors, investing in well-managed diversified equity mutual funds is generally considered a more prudent approach for long-term wealth creation compared to investing in individual stocks or gold. It's essential to select funds that align with your risk tolerance, investment horizon, and financial goals, and regularly review your portfolio's performance to ensure it remains in line with your objectives. Consulting with a financial advisor can also provide personalized guidance based on your specific circumstances and investment needs.