7 ways to buy Gold - Which one suits you?

There are 7 ways to invest in gold. Which one suits you? Have a look.

Please read this post in horizontal screen mode.

To view the below chart in 1 page PDF format click here

Parameters	Sovereign Gold Bond	Physical Gold	PayTM Gold/ HDFC SafeGold	Gold ETF	Gold Mutual Fund	Multi-Asset Mutual Fund
Investment Limit	Min 1 gram; Max 4 kg in a year for an individual	No limit	No limit	Min 1 gram	Min INR 1000	Min INR 1000
Asset	Gold	Gold	Gold	Gold	Gold	Equity + Debt + Gold
Returns	Higher due to interest	As per gold price	As per gold price	As per gold price	As per gold price	As per equity, debt and gold value
Interest on investment	2.5% per annum	Nil	Nil	Nil	Nil	Nil
GST on Purchase	Nil	3% applicable	3% applicable	Nil	Nil	Nil
Tax Collected at Source (TCS) on Purchase	Nil	1% over 2 lakh	1% over 2 lakh	Nil	Nil	Nil
Income tax	Long Term Capital Gain exempt; interest taxable	Long Term Capital Gain after 3 years	Long Term Capital Gain after 3 years	Long Term Capital Gain after 3 years	Long Term Capital Gain after 3 years	Long Term Capital Gain after 3 years
Gold purity	Highest	Concern	Highest	Highest	Highest	Highest
Efforts involved in yearly maintenance (locker visit, review statements)	Nil	High (visit to locker) Rent varies from bank to bank and size	Nil	Nil	Nil	Nil
Yearly Storage Cost	Negligible	High (due to locker rent)	Negligible	Negligible	Negligible	Negligible
Investment horizon	Minimum of 5 years Maximum 8 years	No limit	No limit	No limit	No limit	No limit
*Liquidity - Can it be sold anytime 247?**	After 5 years of original purchase	Conditional	Yes	Yes	Yes	Yes
Liquidity after succession (after death)	After 5 years of original purchase	Conditional	Yes	Yes	Yes	Yes
Can it be used as collateral for a loan?	Yes	Yes	Yes	No	Yes	Yes
Tangible - can touch, feel, see	No, but certificate available	Yes	Yes (Physical delivery option available)	No, but certificate available	No, but certificate available	No, but certificate available

The above chart explains the 6 ways to buy or have exposure to Gold.

The 7th way to buy gold is via the process of an auction conducted by Government or Gold Loan Companies such as Manappuram Finance, Muthoot Finance, or any bank. If a customer defaults on repaying the gold loan, an auction is conducted to recover the loan.

Gold's last one year rally

In the last year, gold has given returns north of 45%. Thanks to the extreme uncertainty. Gold is a medium of exchange since 1660. Since then, gold has given returns equivalent to inflation. For example, over the last 10 years, gold's compounded returns are 8.86% per annum.

The benefits of certain portfolio hedges such as Gold came into clear focus during the 2008-2009 financial crisis and did so again during the subsequent European sovereign debt crisis, the 2018 December stock market pullback, and the most recent COVID-19 pandemic.

For a minute, keeping taxes aside;

Bonds/ Fixed deposits earn interest;
Real estate earn rent;
Equity/ stocks earn dividends;
Gold earns only inflation rate (महागाई/ महंगाई) over a long period of time. In times like COVID-19 when interest on bonds/ Fixed Deposits, rent on real estates, dividends on stock are extremely uncertain, investors rush to safe-haven like gold.

Indian Equity Vs. Gold

Equity and Gold are altogether two different asset classes, both have extremely different characteristics and different purposes. They are not comparable, at all.

Still, for the purpose of returns only I've made the following analysis.

The Year 1979

BSE Sensex - INR 100

Gold rate per gram - INR 100

The Year 2020 (as on 15 May 2020):

BSE Sensex - INR 31,000

Gold rate per gram - INR 4,800

Equities have generated (31000 minuses 4800) 262 times more returns than Gold.

Conclusion

Gold has historically been the optimal hedge over the long run in terms of asset allocation. Gold deserves an allocation in the client's long term portfolio.

How much % allocation to Gold?

It depends on:

Return requirement of the investor
The risk profile of the investor
The time horizon of the investment, etc.

You may contact me in case you need to ask or tell me something. I am waiting to hear from you.

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Stay home! Stay safe!

Thank you very much for your time!

With respect,
Aaditya Chhajed
CA, CFA(US) All Levels Cleared, MCom

E: chhajedaaditya@gmail.com
M: +91-9404055222.

Instagram: https://www.instagram.com/chhajedaaditya/

Aaditya is the founder of Aaditya Chhajed Financial Advisory Services, a financial planning and wealth management firm in Pune.

He loves helping family, friends, and, clients make better financial decisions. He believes learning is perpetual.

He loves reading books, traveling around the world.

He is a commerce postgraduate and Chartered Accountant. He has also cleared all levels of CFA(US) in the first attempt.

Disclaimer:
Investors should seek the advice of their financial advisor prior to making any investment decision based on this report or for any necessary explanation of its contents. Future estimates mentioned herein are personal opinions and views of the author. This post is not a recommendation to buy or hold or sell securities. Investments are subject to market risks. Please read all scheme related documents carefully.

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Aaditya Chhajed, CA, CFA

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