At least in my family, no one at home has subscribed to the idea of buying gold through Gold Exchange Traded Fund (ETF). People prefer physical gold over demat gold! Gold is there to touch and feel, not to see through internet in demat account, is what I have been advised at home!
Gold ETF had several advantages over physical gold (apart from the issues of safety and security) in terms of taxes till Mr. Arun Jaitley spoke in Parliament on 10th July 2014. So, after the budget of 2014, the tax advantage for ETF is negated and brought at par with physical gold.
Gold ETF is classified as Non-equity oriented fund. So, the rules of capital gain taxation are
- Short term capital gain – If the investor sells the fund within 36 months from the date of purchase, it is classified as Short term and taxed at normal slab rates.
- Long Term Capital gain – If the investor sells the fund after 36 from the date of purchase, it is classified as Long Term and taxed at 20.60% of capital gain (sale price minus indexed cost of purchase)
Other advantages of Gold ETF (which of course is difficult to convince at home) over physical gold are –
- No Making charges (and fuel cost of visiting shop or bankJ)
- No one can steal it (it’s really a great advantage!)
- Selling is easy (through a click of a button). In case of physical gold, remember, banks won’t buy back. So, you have to depend on shops. Some of the shops will exchange the coins or bars with jewellery. (this is more than capital gain taxJ)
- You can buy any quantity (less or more, anyway it is DEMAT Gold) unlike physical gold coins or bars which are of specific weight.
- No VAT, Wealth Tax on gold ETFs. However, there is a small amount of asset management fee on gold ETFs. (check whether it is really smallJ)