Traditionally Indians have invested in gold. There were two ways to invest in the gold…..gold coins or jewellery.
Gold Coin: There are small making charges on gold coin (5-8%) and it is generally 99% pure. If you buy 10-gram gold coin @ 30k per 10 gram, you will pay around 31,500 (incl. making charges @ 5%). There is an immediate loss of the amount you pay on making charges and when you sell the gold coin, you will get only the value of the gold.
Jewellery: Catch is in gold jewellery. If you think that buying jewellery is an investment, you are doing a big mistake. Jewellers charges very high making charges (10% to 30%) depending upon the design etc. and sell you impurities along with gold (the jewellery is generally 22 carat, 91.7% pure or 18 carats, 75% pure). If you ever need to sell the jewellery, you will not get anything for making charges and impurities and you will get only the value as per the weight of the pure gold. The jeweller will remove the impurity and he will pay you only for the pure gold. When you buy jewellery, you are paying for making charges and impurities as well. e.g. If you buy a set of 50 gram @30k per 10 gram and making charges @20%, you will pay 90k for gold and 18k for making charges. You will pay Rs108,000 for that piece of Jewellery. If you need to sell it immediately, you will not get any credit for making charges and impurities. You will get only around 92% of the weight of the gold (as rest will be impurity) which is only Rs82,800. There will be an immediate loss of 25,200 (23%).
Do you still think you should buy jewellery as an investment? I am not suggesting that don’t buy jewellery but what I am telling you is that don’t confuse it with investments. It is simply an expenditure on luxuries.
Return on Investment: There is 0% return on gold in last five years but it would have been negative if rupee wouldn’t have depreciated against US dollar. The rupee has depreciated c35% in last five years. At INR72 per dollar today, the rupee is not expected to depreciate further. I expect a very low or negative return on gold over the next five years.
My suggestion: I will suggest avoid gold and invest your wealth in better financial products but if you still believe in Gold and want to invest, better buy gold bonds. There will not be any deduction on account of making charges or impurities and you will get the full amount of gold back when you redeem it, also there is an option you can sell it on stock exchange plus you will also get interest @ 2.5% p.a on the initial investment.
Thanks / Vipul