PERSONAL FINANCE Investing in gold

DIPANKAR JAKHARIA

Let’s learn how to invest in gold to counter market volatility

 Some of us may think that we don’t want politics in our life, but escaping it is impossible. Everything we do or care about is related to politics. Politics shapes our life. The market is also not immune to it. On June 4, the market tanked nearly six per cent in a single day. You must have an idea why it happened. Giving you a post-mortem of the day is not the job of this column. But should the market react the way it did? I think it overreacted and that’s why it is getting back to normal again.

Another concern within the known circles is that a lot of new money has reached the stock exchanges. People are betting on funds or shares after seeing the returns or based on their past performances. The SEBI chief also expressed her concern about new money finding their way into small and mid cap funds. With the popularity of mutual funds as a favourite instrument of investment, new investors are simply looking at past returns and pumping their investments. Distributors are also happy to recommend volatile mid and small cap funds with impressive numbers. This is where experience matters. Those who have seen several cycles of ups and downs will advise against it and rightfully so. The whole idea of building a portfolio is like having complete nutrition on your plate. Balance is the key.

The market is always reactionary to surprises. It also rewards handsomely and keeps its attraction. Experts believe that one-tenth of your portfolio should be in gold. This is precisely to safeguard you for volatilities like this. But how to invest in gold? How much physical gold can one buy? What about gold bonds? Let’s learn.

There is absolutely no limit on how much gold a person can buy and keep in his or her possession, provided one can explain the source of income to purchase it. However, there is an upper limit up to which authorities will not ask you too many documents:

· For an unmarried woman, the cap is 250 grams,

· For a married woman, it is 500 grams,

· For an unmarried and married man, it is 100 grams.

When you buy gold, three per cent GST is levied and jewellers normally charge five per cent or more as making charge. If you are exchanging old gold with the jeweller, no GST is imposed until the equivalent weight. If you are selling gold to the jeweller, no GST is imposed.

If you receive gold as gift it becomes taxable only if the value of the gold is above Rs. 50,000. However, if the gold is received from a close relative, taxation is exempted. Also, during marriage, receiving gold from friends is also exempted. If received as inheritance, it is also exempted.

Now when it comes to investing in gold, physical gold is not the only option. There is an option of investing in gold digitally which has become very popular for a host of reasons. The first option is Severn Gold Bond. Here you just invest in gold with the price of the day. You don’t pay any GST or pay any making charges like in physical gold. When you sell it on a future date, you get the price of the day. The best part is you get an interest of 2.5 per cent per annum during the period of your investments. One can also use physical gold to invest in SGB, which is kept in the banks as collateral and earns the yearly interest. The second is Gold ETF and through mutual funds, which I will cover later. Rather than thinking of gold as jewellery or precious metal, its stability and historical price can be used to counter market volatility, just the way a multivitamin is always prescribed with a strong antibiotic.

(Email: dipankar.jakharia@gmail.com)