we look at some important things that NRIs must keep in mind when they buy gold.
Gold is considered a store of value and a ‘must-have’ in your investment portfolio. Gold diversifies your portfolio as well as mitigates risk. If you look at the historical trend, during periods of severe crash of the Sensex, gold has managed to buffer the overall portfolio loss by acting as a ‘safe heaven’. For instance, in 2008, while gold grew at 29.18%, the Sensex fell by 54.75%. Now had you invested all your money in the Sensex that year, you would have lost 54.75% of it. But if you had invested 5% in gold and the rest in equities, your total loss would have reduced to 50.55%. Had you invested 25% in gold, your total loss would have been just 33.77%.
However, gold continues to be a non-productive asset and over long periods of time, returns from gold seldom beat returns from productive assets classes like equities. Unless you are an active investor who can spend a lot of time rebalancing your portfolio, experts recommend an exposure of anywhere between 5 to 15% of your total assets in gold.
NRIs can import gold bars, coins and ornaments up to 1 kg during their visit to India. The only pre-condition being that they should have stayed abroad for a period of six months or more. “Since the scheme provides import facility after a stay of six months, an NRI can import gold once in six months.
This import is however subject to import duty. NRIs would need to declare the gold on arrival and pay duty which presently is 4% of notified value in case of gold bars bearing serial number, weight and manufacturer’s name and 10% in case of any other kind of gold, including jewellery. The ‘notified’ value is a value determined by the Government from time to time.
Does it make sense for NRIs to import gold from abroad? “With hallmarking now available at many leading gold outlets, the purity and quality of gold in India is equivalent to that in other parts of the world. However, based upon the priority of the consumer there are two counts on which this choice can be made. Traditional gold jewellery in India is inspired by the country’s rich heritage and craftsmanship. Consumers considering purchase of jewellery, especially traditional designs for socio- cultural reasons, will find unparalleled designs and themes in India. In terms of price, the import duty coupled with other local taxes has made gold in India more expensive compared to some other countries. However other costs like making charges etc could be more expensive in countries particularly the US and the UK. So the consumer could be better off buying gold, particularly intricate jewellery, in India."
Jewellery
Indian households predominantly purchase gold in the form of jewellery. Gold Jewellery has aesthetic appeal and is widely used for ornamentation. Besides, investment in gold jewellery is also done for a special occasion such as a marriage, birth of a child etc. However, jewellery by itself has a major drawback – there is a loss of around 30% due to making and melting charges when you buy and sell.
Moreover, gold jewellery cannot really be counted as an investment because buyers of jewellery may not always be willing to sell it when prices go up.
Coins and Bars
Another way of holding physical gold is in the form of bars and coins. Typically, bullion coins are priced according to their weight, with not much premium above the prevailing gold price. These can be purchased from your jeweler as well as from several banks such as ICICI, HDFC etc and are available in various denominations ranging from 2.5 grams to 50 grams. An advantage that this form of gold carries is that it is 24 karat pure gold and comes with an international assay certification which indicates its purity. However, experts do suggest that if you opt for this method, buy the coins from your jeweler. The reason being that when you want to sell your coins, the jeweler will buy it back whereas the bank will not.
Gold ETF
The advent of Gold ETFs has made the purchase of gold as simple and convenient as buying stocks. “NRIs can invest in Gold ETFs in India. If they are buying through the exchange, then NRIs must have a PINS account. An NRI can invest in Gold ETF without PINS account directly with Fund House but in this case investor has to buy or sell in the multiples of 1000 units,” explains Lakshmi Iyer, Head of Fixed Income & Product, Kotak Mutual Fund.
An ETF is a mutual fund scheme which tracks a benchmark index and its performance is based on the chosen index. Gold ETFs are mutual funds that invest in gold and derive their value from the underlying asset, i.e. Gold.
Gold ETFs offer some distinct advantages over other forms of holding gold. The minimum number of units that can be bought or sold under this scheme is one unit which is approximately equal to 1 gram. Therefore, it will prove beneficial even for small investors with an investment capacity of Rs 1000-5000. Further, these units can be easily traded on the stock exchange and hence facilitates ease of operation.
The following other advantages that Gold ETFs have over physical gold are :
» Holding a large quantity of physical gold will ensure that you never have a peaceful night’s sleep; you need to worry about storage and insurance.
» Physical gold always carries the risk of being impure.
» While holding physical gold can attract wealth tax, gold in demat does not.
» The only disadvantage -- you cannot wear your gold ETF at social dos and parties!
e-gold
In 2010, the National Spot Exchange Ltd launched a unique investment product in gold on its platform. Called e-gold, the product provides an opportunity for small investors to invest in gold in smaller denominations of 1 gram and multiples thereof in demat form. E-gold is very similar to functioning to investing in equity shares. You can buy gold in denominations of as little as 1 gram and hold it in demat form.
Advantages of egold
» No storage costs or theft concerns. » No purity concerns.
» High liquidity.
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