From investment point of view, one should invest in bars, coins and not jewellery. You may not get a good price for jewellery because of making and processing charges involved in it.
If you sell gold after keeping it for less than three years of buying it, you have to pay 30% capital gain tax. Tax will be 20% if you sell after three years.
In an interview to CNBC TV 18, Certified Financial Planner Kartik Jhaveri and CNBC Awaaz Commodity Editor Manisha Gupta offer you important things to keep in mind while investing in gold.
What is the best time to buy gold?
-- Rajkumar Singh, salaried employee, Gwalior
Manisha: Some fall in the gold prices is expected in the medium-term. Gold prices have seen a jump of 34% in the last one to one and half years.
Last year, in international markets the average was of $444, while this year we have seen a high of $630. Anytime is good for buying. In near term, the gold has not crossed the $600-mark. If the gold prices touch a low of $595 or $582 in near term, you should definitely buy gold.
If you take a larger view of six months, the gold can fall down to $540 or touch the $640 mark on the upper side.
Should one invest in gold or bars, coins?
Kartik Jhaveri: From investment point of view, one should invest in bars, coins and not jewellery. You may not get a good price for jewellery because of making and processing charges involved in it.
Is there any alternative to investment in gold that also involves trading?
-- Jatin Pandya
Manisha: Gold coins and bars are part of physical trade. MCX and NCDX exchange is another important avenue for trade. Suppose you want to trade 10 gram gold while the price for one gram is Rs 9,000. You pay a margin of 5%.
So instead of giving Rs 90,000 you pay only 5% of the total cost to the exchange. You gain or lose as per the movement of gold in international markets and its parallel movement in the Indian markets. This commodity gives you a lot of leverage.
For example, it depends on you whether or not you want to take the delivery. The exchange also gives you the facility to open a demat account so that you keep your gold there if you don't want to bring it home.
Therefore by paying Rs 4,500 instead of Rs 90,000, you can do margin trading.
Can gold ETF (Exchange Traded Fund) be a good option, if one is looking for a structured product, instead of buying physical gold every month?
Kartik: Certainly, physical gold has got its own set of problems such as safety and keeping it in safe deposits etc. So whenever ETF (exchange traded fund) is introduced, it is definitely going to be a better option. One more thing an investor can do is to open a demat account.
In a demat account, one has to take the delivery of at least one kg gold which costs a big amount. You can also take the exchange-traded funds in international market. Accounts can be opened internationally and money or foreign currency can be sent abroad.
I have invested in gold. I have a 100 gram gold bar worth Rs 900 per gram. How can I get good returns from it? When should I sell my gold biscuit worth Rs 90,000?
-- Mayur Patel, Baroda
Manisha: The latest trend for gold prices has been bullish. It has seen Rs 10,000 level for sometime. Gold touched this level briefly in July-August, and then in May for quite some time.
If we talk about high levels, i.e. $608 in international markets would mean Rs 9,300-Rs 9,400 in Indian markets. Similarly, when you see $620-640 levels in international markets, it means 10,000-11,000 levels in the Indian market. One can see huge profits in next four to six months.
Would it be a good decision to invest returns from equity in gold?
-- Arpit Shekhar, Delhi
Kartik: Yes, you can invest in gold if you want to decrease your equity allocation in your portfolio and if you don't want to put too much of money in the stock market. However, kind of increase you get in share market, you will not get by investing in silver or gold.
So, we see good chances of increase in both the markets in next few years. It is alright if you want to take out some money. Otherwise, it is better to keep some money in stock market.
Should I divert the entire returns towards gold or re-invest in equity to earn more profit?
Kartik: If you re-invest in shares, you will make more profit than in gold. It is alright to invest in gold, silver or bullion, but only if it is between 5 to 15% of the portfolio. It gives you a cushion against volatility but doesn't increase your money as in share market if we talk of five to seven years.
What is the best way of buying gold?
-- Manju Gagtiyani
Kartik: If it is from the investment point of view, you can choose between gold biscuits and rare coins, special coins, gold coins, international coins in Indian markets. It will have same prices as in international markets. And when the exchange trade funds will come to market, it will certainly be a better alternative.
How to look for real gold?
-- Neeraj Agrawal, architect, Bilaspur
Kartik: If you are buying gold for investment I suggest you buy it from a reputed gold vendor or bank. Here you will get gold in tamperproof packing. You can't open it easily unless you cut the packet. You also get a quality certificate which has the gold bar number on it. You can re-issue this certificate and sell the gold anywhere. So this is the advantage of buying gold bars and gold biscuits.
If you are buying jewellery, there are government-approved valuers. You should insist on taking a bill and should pay up the VAT (value added tax) on it. This will help you in getting the thing insured and at the same time you get a good quality and authentic product. You can get your gold valued by an approved valuer in your town.
Why do gold prices vary from shop to shop?
-- Alka Thakkar, Mumbai
Kartik: Gold is an unorganized market right now, while when we trade in commodities futures, you have a fixed price and you a certificate if you are buy something. As far as gold prices are concerned, you get a benchmark from TV or newspapers about the current rate and depending on your need as per demand and supply, shopkeepers set the rate and quote you.
That's why the rates differ from shop to shop. In my opinion, you should not look at the short-term gains of Rs 100 to Rs 400 and sell gold for this profit. Hold it for a longer period until you get good margins.
What is the best way of selling gold? I buy gold from banks.
-- Jaishree Jain
Kartik: We can buy gold from banks but banks don't buy back from us. So we have to sell it in open market. It is true that there is some sort of emotional attachment with the gold, but you have to decide as to what do you want - keep it or book profit like in shares.
In a short-term you wouldn't gain much profit. Only if you buy in volumes will you earn some profit at a difference of small price.
I want to invest Rs 25,000. Should I consider gold?
-- Suruchi Khanna
Kartik: In my opinion, if you have to invest Rs 25,000, you should invest in small amounts of five gram each over a period of five to six months. This way you will get a better price. Looking at the gold market, you should have a time frame of four to five years to earn good profit.
There are several reasons for its prices going up like rising international demand for gold, increase in its industrial use and increasing demand in China is increasing, while no new gold mine has been discovered. Therefore there is a huge possibility of earning profit from it. So give it at least four to five years.
Important points to keep in mind:
- Buy gold bars and coins instead of jewellery for investment. You may not get a good price for jewellery because of making and processing charges involved in it.
- Look for hallmark or BIS sign on gold bars and coins. It is a sign of quality and purity.
- Buy only from a well-known dealer or bank.
- If you sell gold before three years of buying it, you have to give 30% capital gain tax and 20% if you sell after three years.
For more on strategies, log on to moneycontrol.com.