Mukesh Patel.in
practical tax & investment planning online
international tax expert / columnist / author / speaker

ETF – A GOLDEN INVESTMENT!

Gold Exchange Traded Fund (ETF) scores over Physical Gold on counts of

Easy Buying, No Hassles of Safety or Quality & Attractive Tax Benefits!

Glittering Gold has overshadowed many other asset classes in the recent past with a healthy annualized return of around 25% during the last three years. Gold also serves as an excellent hedge against inflation and it makes sense to diversify your portfolio by taking a reasonable exposure to gold as an investment.

Traditionally, the only option available to buy gold was in the physical form whether as in the form of ornaments or as bars or coins. But with the launch of Gold Exchange Traded Funds (ETFs), investors now have the option of investing in gold in the Demat form.

HIGHLIGHTS OF GOLD ETFs

Gold Exchange Traded Funds are like mutual funds’ units. You can cash out anytime realizing the prevailing market price of gold without being bothered about the wiles and guiles of a goldsmith in the market. Gold ETFs can be easily purchased and being held in the Demat form, there are no storage or security problems. A gold biscuit conforms to a standard weight, but gold ETF units being available in multiples of one gram are within the reach of a small investor as well.

Gold ETF units are listed on the NSE and can be purchased and sold as though you are dealing in the gold bullion market, but without trading physically in gold. The fund house buys gold in the bullion market to the extent of your investment at the spot price and when you sell it gives you the proceeds also calculated at the spot price.
Gold ETF buyers are pure investors of gold, who seek a return out of their investment without any other motivation such as adornment or social status.

GLITTERING TAX BENEFITS

Gold has continued to remain as one of the assets on the hit list of wealth-tax. Financial assets have, however, been fortunate to keep out of the wealth tax net. Thus, if your taxable wealth exceeds Rs.30,00,000, there is a positive tax incentive to hold gold in the form of ETF units in comparison to holding physical gold, since you can enjoy the exemption and lawfully avoid the annual recurring liability of paying 1% wealth tax.

Gold ETF has one more tax saving feather in its cap and that is in respect of capital gains.  Gold in the physical form qualifies for long term capital gains tax treatment is sold within three years of its acquisition, the resultant gains are treated as short-term in nature and attract ordinary tax rates. Paper gold issued by ETF being units of mutual funds enjoy the privileged status of a long-term capital asset just after 12 months of holding and attract tax at 10% without indexation or 20% with indexation under the special provisions of Section 112 of the Income-tax Act.

Hedging against inflation, alongwith reaping fair appreciation and securing a convenient investment vehicle for tax efficient exposure are all good reasons to invest in Gold ETFs. There is every reason to include gold as an asset class in your portfolio and Gold ETFs may be an ideal way to join in the gold rush!

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