Also Read: Buy gold, silver & crude: Emkay Commodities
Below is the verbatim transcript of the interview
Q: Which is the best way for people to buy and store gold over and above jewellery?
A: Primarily there are about four ways in which you can buy and own gold. First one is the physical gold which is in the form of coins that we have been all doing all this while. There are certain constraints that come along while buying physical gold. Firstly, there are purity issues most of the times. There is pricing concerns because we have different prices being offered by all different vendors. There is a coin making charge and the profit margin of each vendor is going to differ. So, this has been the earlier method of owning gold. Now we have new products available.
One of the forms is gold Exchange-Traded Fund (ETF). These are listed on the stock exchanges and they need to be bought through a broker. There are certain advantages of investing in gold through the ETF form. There is an absolute surety about the purity of gold that you would be getting. The pricing is more transparent. There is no coin making charges. The only cost associated with this is the brokerage that you would be paying to your broker. The third benefit is from the taxation perspective. If you hold gold for more than one year in ETF form, you get the benefit of long-term capital gains, against physical gold where you need to hold it for about three years to get the preferred tax rate. When you sell back gold in the ETF form, you get a better price than what you will be getting from your jeweller or from the bank. Most of the banks who have sold it to you do not even buyback the gold coins. Lastly, as they are into electronic form, just the way you owning shares these are also in an electronic form, so there are no storage issues, no worries about it getting lost or misplaced.
The third method is a gold fund. These are offered by mutual funds. It is basically to assist people who do not have a demat account or do not want to get into the hassles of opening a separate demat account or anything of this sort. Like you invest in regular mutual funds, you give your money to a gold fund which further invests into the gold ETFs. So, all other benefits remain the same. Just that there are two layers. So there is a cost associated with this which is about 1 percent.
The final way is an E-gold. E-gold is listed on National Spot Exchange and you have to have a separate commodities demat account for this. You can physically convert this electronic gold into physical mode if you have E-gold under the National Spot Exchange. From taxations perspective, it is same and at par with physical gold. So, you need to hold on for at least three years to get the preferred tax rate for the long-term capital gains.
Q: So ETF would be the preferred mode is what you are saying?
A: ETF is the most efficient manner. It's just that you do not get the gold in your own hand. That is the only disadvantage if at all. Otherwise, ETF is the most efficient manner of holding gold.
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