What you should know while buying gold in physical form...

Today, you can buy gold either in paper form, like through an ETF. Or, you can buy gold the old-fashioned way and hold it in physical form like coins, bars or jewellery, which is the focus of this article.

You can buy physical gold through a jeweller or a bank. Jewellers are the traditional channel for purchasing gold, typically in jewellery form. But, more recently, banks have also started offering gold bars and biscuits for sale. Wherever you buy it from, make sure it’s a trusted jeweller or a bank that will provide you a certificate.

If you buy gold coins or bars worth more than '50,000, then you will need to show your PAN card and an ID proof. If you buy gold from a jeweller, then you don’t have to produce any documents.

The advantages

Tangible: Some of us want to be able to touch, feel and hold things that we own. Clearly owning gold in metal form like a coin or jewellery offer this. Additionally, this gold can be used for consumption purposes in that one can wear it for ornamentation, or use it during religious occasions. By accumulating jewellery early, one can start building a pool of assets that one can gift to immediate family members at the time of their respective weddings. This is a benefit and satisfaction that you will not get if you hold gold ETFs.

Store of value: Gold coins and bars are a good form in which to hold some of our wealth. At any time one wishes to convert them into cash, all one has to do is to go to the local jeweller and receive the then prevailing price in return for the gold. Of course, the price can fluctuate, but given that gold is a scarce resource in the world, one can be sure that one will get some value for this at all times.

The disadvantages

Purity: Unless you are buying a gold coin or bar from a bank where it comes with a certificate of purity, you might run the risk of buying gold that is not of a very high purity. This is especially true if you are shopping at a jeweller where you are not sure of their credibility and quality. Only buy from trusted sources.

Storage costs: Physical gold needs to be stored in a safe place as there is a threat of it being stolen. So, you need to protect it by keeping it in a bank locker or a commercial vault. This, however, comes at a cost as you will have to pay a charge to safely store your gold in either of these places. You might also need to spend money on gold insurance.

Lack of interest income: Holding gold, especially when it sits idle in a locker or at home, earns the owner zero interest income. Unlike financial instruments such as FDs, bonds and stocks, that can earn interest or dividend income, gold does not provide a recurring income.

Note: Purity and storage costs are not issues you need to worry about if you buy gold ETFs. However, even if you hold ETFs you will not get any interest income on your holding.

Tax impact

The tax treatment to the profits booked on selling physical gold is similar to that of any capital asset. If you invest in physical gold in the long-term, that is more than three years, then the tax deducted will be 20 per cent of the gains. On the other hand, if you sell it before three years, the tax treatment will be according to the tax slab you fall in depending upon your income bracket. Any gold you hold in physical form will be liable for wealth tax.

Selling it

If you are selling coins or bars and the purity is not in doubt, you can get the current available market price. However, recognise that banks will not buy your gold back from you.

Chances are you will have to go to a gold merchant, or a jeweller. Many of these jewellers might charge you a hidden transaction fee — they will not pay you a full price for what your gold is worth.

Also, if you are selling your jewellery to them, many will not pay for the workmanship associated with the jewellery. As a result, you might not recover the same prices as you paid for the jewellery, even if the price of gold has not moved at all since you first bought.

Selling physical gold is generally easy, but comes with some associated transaction costs.

Source : Media