Gold Glistening

Intro:
Gold will ensure liquidity and help diversify your portfolio. Invest in gold to get good returns in choppy markets and to hedge against inflation

What to DO?

* To build a corpus, buy a coin or bar of gold on your child’s birthday every year

* Buy from a reputed jeweller in your city

* Avoid buying from banks

* Buy gold ETF through a mutual fund broker. You can also use online trading portal
of brokers to buy ETF

* 2-5% of your porfolio must be in Gold


High returns. In the long term, gold earns high returns. The price of one gramme of gold has gone up from Rs 350 in 1999 to Rs 1,416 in 2009. It is also an excellent hedge against inflation. As inflation goes up, market sentiment and equity prices go down, but gold prices rise. Returns are attractive—from 1995 to 2008, gold has given a CAGR of 12.69 per cent. Gold is trading at very high rates at present— Rs 1,390.02 per gramme. But indications are that the prices would go up further. Analysts expect prices to touch Rs 1,760 per gramme this year. In fact, some even predict a high of Rs 2,200 per gramme. If you haven’t bought this year’s supply, then sooner might be better than later.

Exchange value. When it’s time to cash in on your gold, you can convert the coins into jewellery, or merely sell them at the prevailing rate. Gold coins and bars give you the full value. But, if you are converting gold jewellery into updated designs or other forms of gold, you will lose the making and design charges. Also, jewellery with stones will fetch a lower resale value.


Gold ETFs. Several fund houses sell gold ETF Benchmark Mutual Fund (MF), UTI MF, Kotak MF, Reliance MF and Quantum MF manage gold ETFs. The value of your units on the day you sell would be computed and handed over to you. This way, there is no threat of loss of value, and you don’t have to worry about safely storing your gold. In the future, some of these fund houses may even allow you to redeem units of your gold ETF into physical gold instead of cash. Another alternative is to invest in DSP Black Rock World Gold that invests in equities of global gold mining companies. Due to scarcity of precious metals globally, these companies have done well in the past few years. You can invest as little as Rs 5,000 in a gold ETF.

Tax treatment. You do have to pay capital gains tax when you sell gold in any form. If you sell within three years of buying, you are liable to pay short-term capital gains (STCG) tax. Your gains are added to your income. If you sell after holding gold for more than three years, you are liable to pay long-term capital gains (LTCG) tax. For this, you should calculate your indexed cost, which is your buying price multiplied by the cost inflation index. The difference between this and your selling price attracts 20 per cent LTCG tax.

You have to pay STCG tax on ETFs if you sell your units within a year. Here, too, your gains are added to your income. You are also liable to pay LTCG tax of 20 per cent after indexation if you sell your units after a year.