Gold prices have corrected significantly from their January peak, but are still hovering near Rs 1.5 lakh ahead of Diwali. During the festive period, many households in India plan their gold purchase as it is considered auspicious and also comes with offers and discounts.
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The ongoing broader economic uncertainty is also likely to push investors towards adding gold in their portfolio, which is considered a safe haven asset.
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In any case, buyers need to understand that the headline rate is not really what you pay while buying gold. Depending on its type, there can be additional charges, which can significantly influence your final bill. As a result, your decision to buy gold should be taken after considering these aspects.
Ways of accumulating gold:
Generally, there are three popular ways of investing in gold. Traditional buyers usually opt for gold jewellery or bars, while new investors may prefer digital exchange traded funds (ETF). Gold bonds, also highly popular once, have been discontinued by the government, leading investors with no choice to make fresh investments in that area.
Many lenders and online platforms also promote their “digital gold” offerings. However, buyers should be aware that these products are not regulated by SEBI or the RBI, which can expose them to additional risks.
Understanding extra charges:
- Physical gold: Jewellery purchases attract 3% GST, along with making charges that can significantly increase your final bill. Gold bars and coins also attract 3% GST but typically do not involve jewellery-making charges. This choice should depend whether you are investing for potential returns or buying gold jewellery for personal use and festive occasions.
Gold purchase | Price calculation | Total cost |
24K gold biscuit (10g) | Rs 1,49,750 + 3% GST | Rs 1,54,243 |
Gold jewellery (10g) | Rs 1,36,850 + 5% making charges + 3% GST | Rs 1,48,113 |
Note: Jewellery is typically made of 22-karat or 18-karat gold, while bars and coins are made of 24-karat gold. 24-karat is more expensive than 22-karat as it is 99.9% gold, while 22-karat is around 91% gold and a mix of other metals like silver.
- Golf ETFs: Gold exchange-traded funds allow investors to gain exposure to gold prices without physically holding the metal. Remember, ETFs can be costlier than expected due to expense ratios, brokerage fees, etc. Investors should compare these charges before investing.
1 unit of Gold ETF = 1 gram of gold
Overall, the decision to buy ETFs or physical gold depends on your need and intention of investment. ETFs eliminate making charges and physical storage concerns, but they also come with fund management expenses. As a result, investors should compare charges to understand what can offer better value for their investment.
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