Sensex vs Gold 40-Year Return

Both gold price and Sensex were at nearly equal levels 21 years ago, and are trading at equal levels now. Gold prices averaged Rs 4,234 per 10 grams in 1999, while the S&P BSE Sensex was at 4,141 points. Gold prices have multiplied 12 times to Rs 49,659 per 10 gram (MCX February futures) in 2021, while the Sensex has also grown 12 times to 49,625 points (at close on January 21).

Warren Buffet on Gold as an Investment

– Gold lacks utility compared to income-generating assets.

– It is advisable to invest in productive assets over the long term.

– Owning productive assets is likely to be more beneficial over the next 50 years. Gold does not produce any income or value beyond its price as a commodity.

– Gold won’t do anything for you except sit there and look at you. Maybe it’ll make a good mirror in a pinch.

Gold Investment Options in India

1. Digital Gold

   – Can be purchased through various apps in denominations starting from 1 gram. Investments are in 24-carat gold with a purity of 999 or 995 depending on the platform. Other charges such as storage, safety, transaction cost, and a convenience fee are added to the final cost of the gold, which can add roughly 3%. GST is also payable on the gold purchased.

2. Gold ETFs (GETFs)

   – Traded on stock exchanges like shares, with physical gold as the primary underlying asset. A Demat account is required for investing in GETFs. Additional expenses such as operating costs (1%-2%) are applicable. If GETFs are sold BEFORE 3 years, profits are added to income and taxed at the applicable tax slab. If sold AFTER 3 years, long-term capital gains tax of 20% with indexation or 10% without indexation is applicable.

3. Gold Mutual Funds (Funds of Funds)

   – Asset management companies (AMCs) manage mutual funds that invest in Gold ETFs. Can start a SIP in any Gold FOF to invest a regular amount in gold each month (SIP not available for GETFs). Higher expenses (around 0.5% over the cost of a GETF) compared to GETFs.

4. Gold Bars and Coins

   – Minimal to zero making charges must be purchased from a bank or reputed jeweler. Proper markings indicating weight, purity, and quality should be present.

   – Banks only sell gold, they do not buy it back. If sold within 3 years, profits are added to income and taxed accordingly. If sold after 3 years long-term capital gains tax of 20% with indexation is applicable. Profits can be invested in capital gain bonds or residential property to avoid long-term capital gains tax.

5. Sovereign Gold Bonds

   – Introduced by the Government of India as an alternative to physical gold (which has substantial import cost). Backed by the Government of India and the Reserve Bank of India (RBI). Issued in tranches by the RBI under the Government of India, with one-week subscription window every 2-3 months. A coupon rate of 2.5% per annum is paid out half-yearly to investors.

How to buy SCBs?

– SGB can be bought by any commercial bank or post office.

– The payment for the subscription can be done through various ways like cheques, cash, demand draft, and electronic fund transfer.

– Limitations: Money getting tied up for a minimum period of 5 years and less liquidity in the secondary market. Traded volumes are low, and the prices at which they are traded are discounted from the prevailing price.

– We are neutral on investing in gold.