“Chuck all investment avenues !! The best investment is Gold !!” Said Vinay Deshpande, a 35 year old telecom executive to his colleague, Kapil Sharma. “I am going to redeem all my money and buy some Gold Jewellery.”
“I wont be surprised if this love for jewellery came from your wife. But am surprised to hear this from you.” Smiled Kapil.
“I am not buying gold jewellery to flaunt. I am buying it as an investment.” Explained Vinay.
“Well, in that case, please be mindful of a few things. If you are buying Gold as an investment, never buy it in form of jewellery. The reason being, if you buy a jewellery (say necklace) for Rs. 1 Lakh, the actual gold content in it might not be more than of Rs. 70,000. So even if gold gives you returns as high as 30% in 12-15 months, you will only be reaching your investment amount. Also, whenever you want to redeem your gold, there will be some “gold loss” which also gets deducted from your redemption amount.” Said Kapil.
“Ohh !! Good you told me this” said Vinay. “I think, I will ask the jeweller to give me gold coins instead.”
“Gold Coins would be definitely a better option than Gold jewellery. However, buying it from a local jeweller might again come with the concerns of purity. I remember a friend of mine, bought a gold coin from the jeweller. The jeweller charged him a price of 24 Karat Gold, however, the coin was 18 Karats only.” Said Kapil.
“How much importance do these karats have actually ?” asked Vinay.
“Well, that is the measure of purity of Gold. More the purity, higher the value and vice versa. And the price which you track of Gold, is of 24 Karat Gold. So if you are buying a 18 Karat Gold, you should be paying (and later getting) a lower value. Additionally, one has to pay VAT (Value Added Tax) when buying gold coins, which would also impact your returns.” Explained Kapil.
“Ohh !! buying gold in physical form has too many problems. Coz am also worried about the storage of physical gold. If I keep it at home, it might get stolen. If I keep it in the bank, I have to incur locker charges etc. I guess E-Gold will be a better option.” Said Vinay.
“In that case, I have another threat waiting for you. Having physical gold or E-Gold will both attract Wealth Tax too when the market value crosses Rs. 30 Lakhs (combined with other non-earning assets). So pretty much likely that sooner or later you would be required to pay Wealth Tax on your physical gold or E-Gold.” Said Kapil.
“Ohh no !! So many hassles for investing in Gold !! Should I stop thinking about investing in Gold?” asked Vinay.
“Well, not really !! Thankfully we have so many options available to invest in Gold. Only thing is, every option comes with its own merits and demerits. For example, you may go for Gold ETFs and Gold Saving Funds.” Said Kapil.
“What are these ? And what is the difference between the two?” asked Vinay.
“By investing in Gold ETFs, you are buying gold in demat form and through the exchange, wherein you need to pay a brokerage for buying and selling. And if you don’t want to do that, you also have an option of investing in Gold Savings Fund, who would buy and sell Gold ETFs on your behalf.” Said Kapil.
“How is it different from investing in actual gold?” asked Vinay.
“Not very different actually. The price of Gold ETF and Gold savings fund will move similar to gold prices, as the underlying asset is gold. However, you are free from the hassles of checking the purity, worrying about theft and wealth tax. So this could be one of the better options of investing in Gold.” Said Kapil.
“So basically, if I want to enjoy the benefits of Gold investments, but keep myself away from the troubles of the same, Gold ETFs and Gold Savings Funds are the way to go for me. Thanks Kapil for your valuable advice.”
We look forward to your feedback and comments on the above article. Please feel free to contact us on saurabh@nidhiinvestments.com if you have any questions.
(The views mentioned in the article are personal opinion of the author. The characters used in the article are hypothetical)
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Prof. Saurabh Bajaj is an Author, Mentor, Motivational Speaker and Wealth Planner.
He has done his MBA from Narsee Monjee Institute of Management Studies (NMIMS) Mumbai, one of the top 10 management institutes in India. He holds the prestigious FRM (Financial Risk Manager) degree awarded by Global Association of Risk Professionals (GARP), USA. Till date, there are less than 15,000 professionals in the world, who have been honored with this degree. He has also been awarded CFGP (Chartered Financial Goal Planner) Certification by AAFM (American Academy of Financial Management).
After his MBA, he joined J P Morgan, the second largest Investment Bank in the world. He has worked with J P Morgan as Risk Analyst for more than two years.
Prof. Bajaj also holds an Advisory certification awarded by AMFI (Association of Mutual Funds of India). During his stint at Bombay Stock Exchange, he has handled Investment Management and Treasury operations of the BSE Corpus. He has set up an entrepreneurship venture in the field of Wealth Planning and Investment Consulting under the name “Nidhi Investments” and holds the profile of CEO.
Prof. Bajaj sits on the Expert Panel of CAClubindia.com and MBAClubindia.com as Investment Expert.
He is actively involved in investor education through his blog www.professorbajaj.com which has a readership from 78 Countries all over the world. His articles are also regularly published in caclubindia.com , mbaclubindia.com , totalca.com , charteredclub.com, bankbazaar.com and lawyersclubindia.com .
He has been awarded the title of “Best Article Writer” from caclubIndia.com in Jan 2012 and has been selected amongst “Top 5 Technical Writers” from all over India in Feb 2013.
He has been invited by various TV Channels like SPIN TV, CNBC TV18, UTV Bloomberg Etc for programs like "Expert Advice" , "What Markets Want ", "Budget Analysis" etc.
He has been invited by Several organisations like Lions Club, Rotary Club, Agrawal Welfare Foundation, Rajasthan Mandal, Agroha Vikas Trust, Union MF, UTI MF, Arthamitra Gurukulam, Vidyalankar Institute of Technology etc for expert lecture on "Smart Investing", "Life is A Celebration", "Financial Freedom", "The Digital IFA" etc.
He was ranked 8th Merit at All India level NMAT which got him selected for MBA programme at NMIMS, Mumbai. He did his MBA with Capital Markets as his specialisation.
Soft Skills has become an inevitable part of every selection process and teaching learning process these days. The students from small towns and tier II cities, in spite of being talented and well equipped with technical skills, are seen struggling in the selection process. This is because of their lack of exposure to these soft skills. Mr. Bajaj has a zeal for training candidates to develop these skills and has been imparting the same on since last two years. This zeal and passion inspired him to set up his own firm called “Knowledge Circle” which aims to train candidates for soft skills.
Till date, he has trained more than 5000 participants from over 220 organizations across various fields of soft skills.
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He has also been associated with ICAI (Institute of Chartered Accountants of India) for training CA Students on various topics related to Communications skills, Group Discussions etc.
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no better way to explain the common man about investments, especially gold … great article!!
Thanks for the compliments Neha !!
I believe that the concepts of investments should reach to everyone, only then it makes sense.
Thanks again for your visit and feedback. Looking forward to more in future !!
Good one. Came to know the Gold ETF product in a better way.
Thanks for the Compliments bro.
Looking forward to more in future 🙂
excellent.. good work saurabhji….thanks for ur advice.. it is a great help..!!
karishma
Thank you so much for the compliments Karishma Ji.
I am committed to help investors to gain the right knowledge and not get cheated.
Thanks again for your visit and feedback. Looking forward to more in future.
Gold as a Jwellery is more like an asset (ofcourse of your wife) not an investment.
There are pros and cons of keeping physical gold and DEMAT gold. But locker price may not be just for physical gold only. In DEMAT gold someone else pays it and take it indirectly from you.
Yes theft and impurity are bigger challanges in physical form other than tax :-).
But as you suggested after all addition substration DEMAT gold is a better option for invetment and physical more suitable for Happy (L/W)ife 😉
Thanks for the valuable insights Sir !!
Few thoughts here …….In terms of accounting, assets and investments mean the same. Whatever you invest into come to your asset side 🙂 So pretty much agreeing to what you are saying.
About the safekeeping of physical gold, I will use an analogy of You driving your own car, you hiring a driver for your car, you and some friends collectively hiring a driver for a shared car. In the first case, entire onus of cost and also monitoring of traffic is on you. In second, you bear the cost, and the driver takes care of the driving and traffic monitoring. In the third case, the driver takes care of the driving and the cost is shared.
Similar is the case here. You keep physical gold with you, risk is with you. You keep it in locker, risk is transferred but the cost is solely with you. You keep it in paper form (Demat or MF), and the cost is shared. So yes, you are indirectly paying the cost, but it gets lowered as it gets spread. So your final statement is absolutely right.
Thanks again for your visit and feedback. Looking forward to more in future.
Yupe from accounting prespective assets and invetments are same, I was reffering to wife’s imotional attachment to jwellery and thus hard to sell it even if prices goes up (discounting other losses in jwellery).
When asked to one of my friend “Is this right time to buy gold?”, he answered “My wife says YES ;-)”.
Anyways its a lot to learn from you in this field. Nice article. Looking forward for more like this.
“Jago Investor Jago”