Monday, April 23, 2012

eGold vs Gold ETF vs Gold Coins

comparison of gold investment options
Gold has given very good returns over the last few years. There are various options available for investors wanting to invest in Gold. This post offers a comparison between various investment options available in Gold.


Parameters
E-Gold
Gold ETF
Bars / Coins
Form of Holding
Demat
Demat
Physical
Market Timings
10:30 am to 11:30 pm
9:15 am to 3:30 pm
As per Bank or Jeweller timings
Physical Delivery
Possible for any number of units
Possible only above 1 Kg
Not Applicable
Physical Delivery Centers
Multiple
Single
Single
Convert to Jewellery
Option available with select reputed Jewellers
Not Available
Option available if purchased through Jeweller
Pricing
Linked to Indian Gold Prices
Linked to International Gold Pricing
May differ as Banks and Jewllers charge premium anyways
Impurity Risk
Cannot exist
Cannot exist
May exist
Security
Responsibility of exchange
Responsibility of custodians of mutual fund
Responsibility of investor
Resale
Transparent - At secondary market prices
Transparent - At secondary market prices
Banks do not buyback, Jewellers buyback at a discount
Convenience of buying,   storage and selling
High
High
Low
Recurring expenses (Storage, Insurance and Maintenance)
0.40%
1%
High Locker Rent and Insurance
Returns
Highest as it is the most cost effective
Slightly lower than Gold ETF
Lowest in this category
Liquidity
Rs 200-250 crore turnover
Rs 10-15 crore turnover
Figures not available
Taxation
Need to hold for 3 years to be considered a long term capital gain which is 20% in eGold. Wealth tax is also applicable.
Need to hold for 1 year to be considered a long term capital gain which is 10% in Gold ETF. No wealth tax applicable.
Wealth tax applicable
Administration
Need a separate Demat Account other than shares
Same Demat account as shares
Not Applicable

While e-gold directly tracks the domestic, physical gold prices, gold ETF only mirrors them. Certain gold ETFs have the flexibility to invest up to 10% of the total net assets in money market instruments and this can lead to tracking error. Some ETF companies also invest in gold futures and in a basket of gold mining companies. The earnings of a gold mining company may not reflect the price movement in gold, thereby reducing the impact of the price rise. As a result, the returns from ETFs may not be similar to those from investing in physical gold.

While eGold offers highest returns in comparison to Gold ETF and physical gold, Gold ETF has a better taxation as one needs to hold Gold ETF for only 1 year to be considered a long term capital gain and taxation is 10% - half of what is there for eGold. Also, one does not need to pay wealth tax.

However, eGold offers option to take physical delivery at multiple centres and option to convert it into jewellery with select and reputed jewellers. 


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