Gold just got easier to buy, hold & sell

Scenario One: You’re buying gold to save for your child’s marriage in 15 years. You buy a few grams each year and put it away in t...

Scenario One: You’re buying gold to save for your child’s marriage in 15 years. You buy a few grams each year and put it away in the locker. Each year, you put something like Rs 50,000 away. Cumulatively, over 15 years you put away Rs 7.5 lakh underground. You pay a annual locker fee, there is the threat of the locker getting burgled and you lose money each time you get this gold remade as making costs are deducted from the value of gold.

Scenario Two: You put away Rs 15,000 in an Exchange Traded Fund that deals in gold. Each year you buy Rs 50,000 worth of units, the transaction costs are low and the safety factor is very high. You need to check on the annual investment fees that the fund charges. At the time of the marriage, you withdraw your money and buy the jewellery you want to buy.

Given that India imports 750 tonnes of gold each year and most of it is made into jewellery and put right back into bank lockers, there is a huge asset base that is simply lying unused. In an attempt to make it easier to buy, sell and hold the yellow metal, this Budget is trying to move you from Scenario One to Scenario Two and put this sunk money into circulation.

The government will allow exchange-traded gold mutual funds to operate. Says Ajay Bagga, Chief of Kotak Mutual Fund: “The regulatory framework is yet unclear — whether it will be Sebi or RBI or the Forward Market Regulator who will be in charge, but it is going to be another option for the gold buyers of India.” Agrees financial planner Himanshu Kohli, Partner Client Associates: “Gold is negatively correlated to equity and debt, this gives the retail investor another asset class to diversify and reduce the risk of his portfolio.”

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