How should you consider investing in Gold this Diwali?

Diwali is here! We consider it auspicious to buy and invest in Gold during Diwali! This year we are seeing uptrends in Gold prices and on the other hand contemplating on whether to buy or invest in Gold seeing the cost. Well, in personal finance & investment decisions, we always need to be thoughtful every time we take any financial decision. I ask you to think on these THREE things before buying gold:

1. Decide on your purpose:

Gold buying is truly auspicious in this festival. We should set the purpose before buying or investing in the same. e.g  Consumption= If we wish to make some jewelry from this. To give gifts= if we wish to give it as a gift to someone we love. To hedge= If we want to hedge against the total portfolio volatility To create wealth= You wish to create long term wealth When you know your ‘WHY’, you can take a wise decision while investing in gold. Random investing is not good for the health of our personal financial elements.  

2. Gold prices are volatile

Gold prices are directly linked to their underlying asset class i.e. Gold itself.  These prices are sensitive to Demand & supply mechanism. This is turn is caused by many reasons like geo-political tensions, Central bank’s own policies about gold reserves, consumption demand etc.   This shows gold price movement since last 3 years. The reasons mentioned above are behind this movement in their own capacity. So, gold prices are volatile & directly linked to underlying asset class unlike mutual funds where NAV is the ratio representing assets, liabilities & no of underlying units held in the scheme. Before investing, please understand this factor well.  

3. Consider your asset allocation before investing:

Before investing in any investment option, we must consider ur asset allocation. Asset allocation simply means, thoughtful division of the investment amount among different suitable asset classes as per our goals, risk appetite & tenure. As per the Thumb Rule, one should have around 10% of the wealth in Gold. But, we all have our own needs, responsibilities, goals, risk profile & investment tenure. So we should decide on the asset allocation accordingly. This can help us to have suitable portion of gold in our total portfolio.   What should you do about investment in Gold now? If you have checked off the above factors after due understanding, make a suitable decision & invest in gold! Please remember, considering volatility, you can consider to invest in a staggered manner instead of one big investment at one go     How to invest in Gold? Today, along with physical gold, we have different options to invest in gold.

1. Gold ETF:

Gold exchange traded fund is one of the options to invest in gold in E-form. Here, one should have a demat account to invest in Gold ETF. We can invest here, track a price & investment value even daily. Here, 1 Gram = 1 Unit of Gold ETF. It’s a very liquid form of gold investment.  

2. Gold Mutual fund:

Gold mutual fund is also one of the suitable options to invest in gold. It invests in gold and allied industries. It works like other types of mutual funds only. We can invest in gold via gold mutual funds as its liquid, transparent way of investing.  

3. Sovereign Gold Bond:

Sovereign gold bond is the product of The Government of India & it is made available by The Reserve Bank Of India. It comes with investment tenure of 8 years. One can invest via Demat mode or through physical mode as well. It is made available fresh in tranches, which are opened by RBI from time to time. Each tranche comes with a different price band. It is based on market price of the gold, for last week of the month, before the month of tranche opening. After the closing of the tranche, the bonds get listed in the secondary market.   Income Tax Application for the investment in Gold: Tax implications have been changed since Budget 2024! Please refer below to simply understand the same-

PARTICULARS	SHORT TERM CAPITAL GAIN		LONG TERM CAPITAL GAIN		SHORT TERM CAPITAL GAIN			LONG TERM CAPITAL GAIN
	BEFORE BUDGET 2024				AFTER BUDGET 2024
	HOLDING PERIOD	TAX RATE	HOLDING PERIOD	TAX RATE		HOLDING PERIOD	TAX RATE	HOLDING PERIOD	TAX RATE
Physical Gold	24 months or less	As per tax slab	24 months or more	20% with indexation		24 months or less	As per tax slab	24 months or more	12.50%
Gold Mutual Funds (Bought before 01/04/2023)	36 months or less	As per tax slab	36 months or more	20% with indexation		24 months or less	As per tax slab	24 months or more	12.50%
Gold Mutual Funds (Bought after 01/04/2023)	N/A	As per tax slab	N/A	As per tax slab		24 months or less	As per tax slab	24 months or more	12.50%
Gold ETF (Bought before 01/04/2023)	36 months or less	As per tax slab	36 months or more	20% with indexation		12 months or less	As per tax slab	12 months or more	12.50%
Gold ETF (Bought after 01/04/2023)	N/A	As per tax slab	N/A	As per tax slab		12 months or less	As per tax slab	12 months or more	12.50%
Sovereign Gold Bonds (If sold in secondary market)	36 months or less	As per tax slab	36 months or more	20% with indexation		12 months or less	As per tax slab	12 months or more	12.50%
Sovereign gold bonds if held till maturity, then they remain tax free

    Gold caries higher sentimental value than any other asset classes. It thus should be a thoughtful investment at your end!