Dhanteras 2018! Should you really buy physical gold? Get profitable deal, do it this way

The five-day Diwali festival will begin with Dhanteras – also known as Dhanatrayodashi or Dhanvantari Trayodashi, on Monday. On this day, jewellers usually see massive rise in demand for yellow metal every year either in the form of jewelry or coins. Usually, during festivals, gold price tends to inch up because of the rise in demand. However, traditionally investors in gold typically purchase the yellow metal in physical form, which along with real estate forms a big portion of country’s household savings. 

The secret of the physical gold buying mistake lies in the fact that the buyer tends to gloss over the fact that a list of additional costs (for example storage cost) is priced into purchasing of physical gold, if he or she is looking at it from an investment perspective.  
Not only this, buying physical gold comes with a lot of risk factors, which a customer should keep in mind during purchase of the metal in this auspicious occasion.

Also considering jewellers usually see massive rise in demand for yellow metal on this day every year either in the form of jewellery or coins – there are chances that you may be misled with what you have purchased, in short, jeweller may palm you off with inferior quality gold.

For purchasing physical gold – a customer must keep in check factors like purity of gold, making charges, man-made versus machine made ornaments, buyback options, jewellery stores and mark of Bureau of Indian Standards. 

Considering this, investors can in fact make money on yellow metal and still remain safe. However, the only thing they have to do is not hold physical gold and instead should invest the money in gold exchange traded funds (ETF), gold fund of funds and sovereign gold bonds

From an investment perspective Gold ETFs should be preferred to physical gold. The underlying asset of all the Gold ETFs is gold of 99.5% purity, thus the performance of most of the ETFs is quite similar.

The minor difference in their performance is on account of tracking error (difference between ETF’s returns and gold’s returns) and expense ratio.

Gold ETFs are easy to hold as they are in a dematerialized form. This helps in saving on the storage cost and avoid security risk. Also, their pricing is transparent and are more liquid as they are listed on the exchange and their purity is guaranteed by the asset management company.

Features of Gold ETF are: 

First and foremost benefit of having a gold ETF is that there is transparency as just like the stocks on exchanges, the commodities price is available publicly. 

Secondly, they are easy to trade, as you can begin trading in ETF with just 1 unit which is 1 gram. This becomes even cheaper for those people whose budgets cannot afford to buy physical gold. ETFs work like stock trading on exchanges, you can buy and sell them via your fund manager on a daily or even hourly basis. 

There are not much charges levied for buying gold ETF, when compared to physical ones. Once you invest in ETF on exchanges, then there is no entry or exit load – a type of charge that is to be paid to buy or sell units. Also brokerage charges are very low 0.5% to 1%. 

While many would be low-risk takers and are not comfortable in making any sort of investment when it comes to market linked products, however, Gold ETF actually have very low risk compared to equities. 

Although  gold ETFs attract long-term capital gains tax after one year, a customer will not have to pay VAT, Wealth Tax or Securities Transaction Tax on them.
 
Therefore, it is advisable that this Dhanteras, choose your yellow and shiny metal wisely, if you do not want to go through all the hassles. 

Gold ETF has generated returns in the range of 8% to 13% on exchanges.