In India people have been investing in gold for ages. The reason behind it is both social and financial. Socially, gold is a status symbol and it is the most secure and safe investment which can be handy in time of need, although very few Indians actully trade in gold.
These above factors have insured that there is very high demand for gold in India.
There are other factors which have generated a lot of interest in gold amongst investors through out the world:
1. The volatility in the equity markets worldwide
2. Concerns of the United States recession
3. Inflationary pressures due to high oil, commodities and food prices
4. Weakening dollar
The price of gold has more that doubled from Rs 6,000 in early 2006 to more than Rs 12,000, in mid 2008.
More options in buying gold
Earlier the only way you could invest in gold was to take physical possession of the yellow metal, but with the launch of Gold Mutual Funds (Gold Exchange Traded Funds or ETF), an investor can now buy gold in the demat form.
If you are buying gold purely for investment purposes, then Gold ETF is a much better option than physical gold because of the following reasons:
1. Lower cost of buying
When you buy Gold ETF you have to pay only the brokerage charges, which is usually around 0.5 per cent vis-à-vis shelling out between 10 and 20 per cent as premium and/or making charges if you buy physical gold. To store physical gold, you may incur locker and insurance charges. For ETFs, you pay the annual fund management charges of approximately 0.5-1 per cent.
2. Price transparency
For Gold ETFs, the rates are pretty transparent as they are linked to international prices. But there's no consistency in gold prices across various jewellers or banks, even within the same city.
3. No purity issue:
People are usually concerned about the purity of the gold they purchase in the physical form from jewelers. an investor need not be concerned about the purity of gold in the case of Gold ETFs.
4. Safe n' Secure:
Gold ETF units are going to be in your demat account and there is no concern of a theft or loss by misplacing those.
5. Capital Tax Gains:
In case of physical gold, the long term capital gain tax becomes applicable only when the holding period exceeds three years. The limit is one year for Gold ETFs.
6. Wealth Tax:
Physical gold attracts wealth tax whereas Gold ETF is exempt from wealth tax.
7. Convenience:
Buying and selling Gold ETF is much simpler than buying real gold. All you need to do is call up your broker and your job is done.
Thus Gold ETFs offer a convenient, safe and hassle-free investment opportunity in gold, besides reduced expenses.
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