Wednesday, September 7, 2011

Investment in Gold - Part 4 of 4

This is the last of the 4 part series about ‘Investment in Gold’

e-Gold
One of the most interesting investment cum consumption method of investing in Gold and picks the best aspects of all the previous investment methods
Buy gold in minimum units of 1 (no fractional ownership) at prevailing market price - [similar to Gold ETF]
Demat account to hold e-Gold is different from the one use for Gold ETFs / stocks – [no hassles of holding gold in lockers]
Gold is of 995 grade (the highest grade in gold) – [purity is guaranteed]
Brokerage is lower or equal to the brokerage as in gold ETFs – [overall transaction costs are lower]
Your gold is held in a warehouse managed by the National Spot Exchange (view it as the gold in a very large locker) but you hold it in demat form - [safety, from a perspective of storage, as good as Gold ETFs]
You can either sell gold and book profits (like you sell stocks / Gold Mutual Funds / Gold ETFs) or take delivery of the gold in the form of coins or bars by paying applicable state VAT and handling charges - [ease of selling]
Trading window is 10:00 am to 11:30 pm - [unlike Gold ETFs or Gold Mutual Funds]
Flexibility of buying any amount of gold without the hassles of getting a locker
Tax treatment on the profits made by buying and selling of ETFs in NOT AS tax treatment of profits on stocks / shares.
Not all brokers who deal with equity are brokers in e-Gold

Gold Futures
Started in India in 2004; comes under the category of commodity trading
The most rewarding AND riskiest of all investment methods in gold
Works like stock futures
You trade (buy / sell) large amount (multiples of lot size) of gold in a single transaction
Minimum lot size for a gold future contract is 1 kg
Not all brokers who deal with equity are brokers in Gold futures

Risk Reward Ratio (in decreasing risk and return)

Gold Futures > e-Gold > Gold ETFs > Gold Mutual Funds

Please note, I do not consider gold under the consumption category for the risk-reward ratio.

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