Tuesday, 16 April 2013

Investment in Gold ETF

My wife has the habit of following gold prices especially in view of the ensuing Akshaya Trithiya day  (usually falling  in May every year) considered to be auspicious to buy Gold in some form.  Though BSE showed only 3% annual return during last 3 years,  God has shown more than 25% annualized returns during the period. But Gold price has fallen drastically after last year as can be seen from the monthly chart of Gold prices shown below:

Actually it is right time to buy gold in view of drastic fall in the recent time, especially in the form of Gold ETF (Exchange Traded Funds) such as Reliance Gold, SBI Gets or Goldman Sachs GOLD ETF etc.  It is like buying stock one unit of ETF roughly represents the market price of GOLD at the time of purchase.

Advantages of GOLD ETF over any other forms are:

  • No making charges or wear and tear charges as prevalent in the case jewelry while buying ETF.
  • Storage, protection, insurance costs can be avoided.
  • Exchange traded funds are easily traded and there liquidity connected expenses for transfer is lower than any other form.
  • You can start investing small surpluses in ETFs just like SIPs regularly so that you can achieve rupee cost averaging and long term appreciation.
  • Wealth tax is not applicable .
  • Regarded as Mutual Fund units, the minimum holding period for such assets to qualify as long-term assets is a year. As these are not equity oriented mutual funds, long-term capital gains (LTCG) on the sale of gold ETFs does not qualify for tax exemption. Short-term capital gains (STCG) would also not be eligible for concessional rate of taxation. However, these are eligible for the concessional LTCG tax rate at a minimum of 10 per cent of the gains without indexation or 20 per cent of the gains with indexation.The long-term gains on sale of such ETFs are taxed at a maximum of 10 per cent of the gains. STCGs are taxed at normal rates.Gold has to be held for three years to be termed as long-term capital assets, while gold ETF need to wait for just a year to get the status.

    You may visit NSE site or BSE Site  for further details on GOLD ETFs.