Gold as an investment option for NRIs
Real estate is a popular mode of investment for NRIs and most of them make a beeline for it. However, since finance experts advise diversifying your portfolio, as an NRI you can also look at other lucrative options today like equities and gold.
Gold is considered a favourite asset class, as it helps diversify portfolio and take the pressure off the risk factors. Gold provides a hedge against inflation and remains steady even when markets are falling. So, while real estate prices may fall and equities crack, gold is seen to remain steady Therefore, in India, gold is quite risk-free.
Even during recessions, gold performs better than Indian benchmark indices. For example, during the 2008 recession, its growth rate was at 29.20% whereas Sensex delivered negative returns (down a whopping 53%).
With market volatility and low interest rates, it would make sense for NRIs to reduce risk, diversify their portfolio and invest in gold. When the benchmark indices fall, the yellow metal will act as a safe haven and buffer losses.
Investing in Gold
There are several gold investment choices in India for you. These include gold bars and coins, gold funds, gold Exchange Traded Funds (ETFs) as well as e-gold. There is no cap on the investment. You may even invest regularly through small amounts like an SIP.
Bank gold coins are reportedly not an exciting option because of lower liquidity and high premiums.
Let’s take a look at gold bonds, funds and ETFs are highly liquid investments and you will always be able to sell it easily unlike gold jewellery.
Sovereign Gold Bond
A recent entry into the paper gold scene. These gold bonds allow investors to hold gold in demat form and in small denominations such as 1 gram and multiples of it, up to 500 gm. The bonds give you a coupon interest rate of 2.5%, and you can trade them once they are listed on the exchange. The bonds are backed by a sovereign guarantee.
Instead of holding cash for the short term, invest in gold ETFs. It is like investing in stocks with underlying exposure to gold. They are fairly liquid, have dividend options and traded on the Stock Exchange. You can buy from a broker like you buy equities. The benefit of ETFs over gold funds is that it’s expenses (management fees) are lower by approximately 1% per year.
These are fund of fund schemes which invest in gold ETFs and other short-term funds, either through an asset management company or Mutual Fund distributor. You can invest in such funds through monthly SIPs.
Gold coins, jewellery come under short-term capital gains tax if held for three years and long-term capital gains tax after three years.
Gold ETF is more tax efficient because capital gains are considered long term after only one year. There is no TDS on gold ETFs units bought and sold through exchange but only when purchased from a fund house.
Gold bonds score on tax efficiency too. If held to maturity, gold bonds are exempt from capital gains.
However, be aware that gold is not a very productive asset and cannot be compared to equity in returns. So, keep your exposure in gold from anywhere between 5 to 15% of your portfolio.
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