Is buying gold still profitable? - Outside View by PersonalFN

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Is buying gold still profitable?
Jul 26, 2014

We all know gold is an important asset. However, following latest developments, one might be wondering if buying gold is really profitable now. Indian government is in no mood to lift the import restrictions imposed last year. Importing gold in India is costly. Due to gold import restrictions, gold enjoy premium in India. In simple terms, even after adjusting for currency differences, gold is costlier in India than in international market. Going one step forward, newer policies of government have made buying gold even less attractive.

Latest developments

  • In Budget 2014-15, long term capital gain tax on non-equity mutual funds was hiked from 10% to 20%. Also, the holding period for calculation of long term capital gains has been extended to 36 months, from the earlier 12 months. This is expected to impact the post-tax returns generated from gold savings funds and gold Exchange Traded Funds (ETFs), if held for less than 3 years. This change is applicable from 10th July 2014.

  • As per new law applicable to companies, jewellery companies can’t run gold deposit schemes if they are offering in excess of 12% returns to depositors. Furthermore, Jewellers can’t collect deposits greater than 25% of company’s net worth. Now buying gold in smaller installments through jewellers would also be less attractive.
PersonalFN believes recent policy changes may make buying gold unattractive. Having said this, you shouldn’t forget that, gold is not bought for earning maximum returns. Rather, it is bought as a portfolio diversifier. PersonalFN firmly believes having optimum asset allocation is important. While you prepare asset mix for yourself, you must consider your risk appetite and time horizon. Chasing an asset for earning maximum returns is speculation and should be avoided. PersonalFN recommends its investors to have 10% to 15% exposure to gold.

Should you still buy gold?

PersonalFN is of the view that, even after considering recent policy changes, buying gold ETFs or gold savings funds remains the most desirable option. After all gold ETFs and gold saving funds are among best options to accumulate gold. If you buy gold in physical form, you must always ensure that it remains in good state. Considering high insurance cost for physical gold, you may look to buy gold in paper form. Moreover gold ETFs ensure purity. Despite the long term capital gain tax rate on Gold ETFs has been doubled, real impact on your gains wouldn’t be as big as you may imagine. While calculating your profit for taxation purpose you can claim indexation benefit. Indexation benefit helps you adjust your purchase price upwards for inflation. Not a bad deal. This article has been authored by PersonalFN, a Mumbai based Financial Planning and Mutual Fund Research Firm known for offering unbiased and honest opinion on investing.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.


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1 Responses to "Is buying gold still profitable?"


Jul 26, 2014

Why not invest in Silver ?

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