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Finance > Betting on the Bullion
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The glitter is always beckoning and never ceases to amaze the lovers of sparkling gold. While the use of gold is essentially enshrined in the history and culture of India, it is also a metal that is considered to be an effective and lucrative investment portal. Skyrocketing prices and changes in lifestyles have impacted standards of living. However, the importance of gold as an essential investment portfolio and as a trendy fashion statement is still much agreed upon. Anusha Surendran attempts to unravel the reason behind gold providing the quintessential investment opportunity and on how the yellow metal is still a popular long-term investing option

Rubina has always wondered how the chunky ‘haarams’ (necklaces) and the ornate ‘jhumkas’ (chandelier earrings) are going to help her in her future career as a doctor. After haggling with her mom before her wedding on the pros and cons of possessing ornaments that she hardly wore, she caved in to investing heavily on gold jewellery, mostly to satiate her mom. This was around 15 years back! Now looking at the fluctuating prices of essential commodities and the falling rupee value, Rubina feels that if not anything her jewellery is an effective mode of long term investment. With her kid’s studies and her own plans of pursuing a Masters in the pipeline, Rubina feels that liquidating the gold for a secure future is always an option. Rubina is only one among the many for whom the gold jewellery at home is a form of safe and quick money rather than fashion statements. Though with jewellery pieces the wastage is high and the corresponding costs incurred on getting intricate designs made is also high, gold is always considered as an effective mode of investment despite fluctuating costs.

Jewellery vs. Gold Coins
As an investor it is crucial to be aware of various modes of buying gold. For traditional domestic buyers investing in gold is usually through jewellery. Gold occupies a central role in the traditions and mores of the Indian culture and its purchase is almost always associated with weddings and other cultural events. Religiously too, the purchase of gold is associated with the festival of Akshaya Trithiya during which the yellow metal is bought in many households as a harbinger of good fortunes and brighter prospects. As far as jewellery is concerned, though the resale value can be profitable, as the designs get more intricate the wastage and making charges can prove to be heavy on the pocket of the investor.

Gold scores high in terms of liquidity. The yellow metal is one of the very few investment avenues that can be converted into cash any day. Jewellery loans given by banks also make for good avenues for those in need of hot cash. These loans usually entail repaying after a specific period of time and at a fixed cost. “I was able to pay off my jewellery before the specified period of time. For me, jewellery loan came as a boon when I was in need of cash for my daughter’s wedding. Repaying in instalments is a pocket-friendly way for many who take jewellery loans for liquid cash,” says Latha.

Jewellers also exchange old gold possessions for newer designs. But in India, gold jewellery is usually connected with social sentiments and thus is usually the last item to be sold or mortgaged in case of financial upheavals. These social stigmas sometimes negate the liquidity that gold possesses. Experts concur that gold bars can be a healthy addition to an investment portfolio. With gold bars, not only is the purity of the gold maintained but the concept of wastage and making charges also does not enter the picture. Gold coins and bars are also easy to store and the flexibility they offer in terms of future use make them a profitable investment.

Gold Exchange Traded Funds are one of the popular options of investment these days. The Gold ETFs are similar to mutual funds where each unit is equivalent to one gram gold. The units can be traded via a DEMAT account. Gold ETFs seem to gain brownie points with investors as it offers the flexibility of a stock and the protection of a fund. E-gold, an electronic way of purchasing gold, is also gaining supremacy among investors who are looking for long term options. The cost of trading e-gold in the market is nominal and the returns are good too. E-gold can also be freely converted into physical gold. In India, e-gold is offered by the National Spot Exchange Limited and can be traded though the DEMAT account. An investor also has the option of taking physical delivery of the metal while dealing with e-gold. Trading in both e-gold and gold ETFs involves payment of a brokerage fee.

Calculating Risk Factor
Gold, physical or otherwise, is usually considered as a hedge against unexpected financial crises. On the other hand, one of the oft-mentioned risks associated with investing in gold is the ‘opportunity cost’ (value of the best foregone alternative) incurred in investing in other avenues that might give better returns. With food prices skyrocketing, the phenomenon is bound to have an effect on gold prices, as we keep experiencing intermittently now. Calculate the risk factors before investing and always stay as a long-term investor as far as gold is concerned, caution experts. Safe storage of gold is crucial. With unsafe work and home atmospheres, many these days are opting for e-gold options where the worry over safekeeping is staved off, besides saving you storage costs (locker fee) or insurance charges (covering risks of keeping the gold at home).

Tax Treatment
Gold attracts capital gains as per the Income Tax Act. A majority of the gold traded in India for retail or domestic purposes is done so without bills or invoices. Always insist on a bill from your jeweller and make sure you are aware of the wastage values and the making charges, in case of jewellery. Changes in political regimes, technological advancements and rising prices all have an impact on the way gold is traded on a day to day basis. It is prudent for an investor to understand the tax risks, political and economic risks involved in buying gold before carving out a niche for the yellow metal in their investment portfolio.

Gold being a finite resource comes with a good demand and safety nets. Prudent investments in the metal can help in witnessing greener pastures or in this case golden pastures!

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