Gold Investment options in India!

Gold is the oldest currency in the world and is coveted across continents and cultures for a variety of reasons and is a remarkable hedge against inflation and hence tends to retain the purchasing power across time. It takes care of the 'preservation' part of any portfolio. Gold has been making waves since S&P downgraded credit rating of the United States from AAA to AA+.  As all other investment options are in deep stress, gold is attracting fresh investors, pushing the prices to new high, people are looking for gold for investment, however, buying gold in physical form like jewelery is a big problem due to impurity and resale value issues.
Experts suggest that at least 10% of your investible portfolio should be in gold. As it happens, for many Indian families gold often represents a large percentage of the family assets, given the socio-economic and cultural factors in play. Whatever be the reasons, an investment in gold is worth considering.

Here are some of methods which can be considered for investing in Gold.

1. Gold ETF 
The Gold Exchange Traded Funds is one of the best option to consider for investment in gold, for investors who want to invest in gold but without storing them. To start investing in Gold ETF all you need is "Demat Account". Your gold remains safe and you don’t have to go to the market to sell it. Gold ETFs give you tax benefits too. The best part is that you don’t need too much money for this.

Tax Treatment for Gold Exchange Traded Funds check this link 

Tax treatment for Gold ETF

The NAV is displayed periodically for the gold ETF just like mutual funds.
The advantage of Gold ETF is that you do not need to worry about the safety and storage as you would in case of physical gold.This is also very liquid compared to physical gold as the physical gold has to be taken to the buyer and sold.

Performance of Gold ETF Funds (click image to enlarge)

2. E-Gold
E-Gold is a new type of investment in Gold in India introduced by NATIONAL SPOT EXCHANGE LIMITED from April 2010 onwards.
Website link of NSEL: http://www.nationalspotexchange.com/index.htm

This facility allows investors to buy gold in a dematerialized form.

The trading session is from 10am to 11.30pm and hence investors can do it at their convenience.

Investors can buy in the lot in one unit of e-Gold which is equivalent to one gm. of gold.


Investors can invest in Gold in small denominations and they can hold it in demat and electronic form. e-Gold is demat Gold units. 0ne unit of e-Gold is equal to 1gm of Gold. You can buy Gold in small quantities like 1gm.

Dematted Gold units can be converted to physical units if you want it. No need to get out from home if you have an Internet connection at your home to buy, sell e-Gold units.
All you need to do is to go to the NSEL website and find a list of the depositories to open a demat account for this. You need a separate demat account for gold E-gold investment. Once you have that, it becomes very easy to trade with gold online.

  Difference between cost structure when investing in Gold ETF or Egold

Taxes for Egold from NSEL in India

No Taxes like VAT and Excise taxes on buying and selling of e-Gold in electronic form. If you are taking delivery of e-Gold, then you have to pay the VAT @ 1% and other local taxes applicable.

Long Term and Short Term Gains

If e-gold is held for less than 36 months, then it is a short term asset. Short term capital gain tax is applicable as per slab rates
If e-Gold is held for than 36 months, then e-Gold is long term asset. Capital gain tax applicable at 10%.

Wealth Tax
Wealth tax- Wealth Tax for e-Gold in India is applicable at 1%, if the net wealth exceeds 30 lakhs.

3. Gold Funds or Gold Fund of Fund
Gold funds are like mutual funds run by a fund house. The best advantage in investing in gold fund is that investors do not need a demat account to invest in a gold fund. Investing in Gold Funds or Fund of Fund don't require demat account like in Gold ETF or Egold. You get all the same facilities from gold funds as you get from other gold investment options with demat account.
With low penetration of demat account in India, Gold fund is a good option for people who do not have a demat account. This gives you all the benefit of virtual gold such as no storage cost and safety concern. The NAV of the fund will be bench marked against the price of gold.

Gold Fund of fund invest in gold ETF fund where as gold funds invest in companies which invest in gold mining companies.

4. Gold deposit scheme
The gold deposit scheme announced by the Indian Finance Minister aims to draw out a part of country's vast gold holding in private hands and thus reducing India's dependence on importation of gold. In this scheme they issue interest bearing certificates against gold collected from households, temples and trusts.

Under this scheme, the owner of gold gets a certificate against delivery of the physical gold with the designated banks. Here you can tender gold in the form of gold bars, coins and even jewellery.