PV Subramanyam, CEO, Subramoney.com, says “I would rather put it in a multi-asset fund because a multi-asset fund would have 10% of its money in gold. So at any point in time, they will keep selling equity, buying gold or selling debt, buying gold or maybe selling gold and buying equity. That balancing will be done by the fund house and that is more tax efficient than you being able to do it. If you sell gold, you will pay capital gains tax. If you buy more gold, you will pay GST and things like that but if you let the fund manager sell equity, sell debt and buy gold when it is efficient that makes more sense. So a multi-asset fund with 10% in gold or 15% in gold makes more sense and it is more tax efficient also.”
During Diwali time, especially Dhanteras, talk about gold is mandated even as we are dealing with a lot of uncertainties right now. There are geopolitical concerns, concerns over crude oil prices, which way they are going to go and of course slowdown in key economies. How important is gold as an investment class today?
Normally you tend to have about 5-10% of your portfolio in gold but gold is not very efficiently taxed. Sovereign gold bonds are a good way to pay less taxes because the capital gains is tax free and so when you have gold coming in at the end of eight years, you can either take it in the form of gold or you can take it in the form of cash. Both these options are available. So from a tax point it is more efficient. ETF is also useful if you want to trade. But the most important thing is gold is one of the greatest SIPs that we have done over maybe 100 years.
People will tell you, my grandmother bought it at this price. My great grandmother bought it at this price. My mother bought it at this price. Gold is never sold. So if you look at the returns that you get in gold, it is because you have held it for an extremely long period of time but you never sell gold so therefore you get good returns. Yes, gold should be a part of your portfolio but there are various methods of having it in your portfolio. Buying gold is one way. Investing in multi-asset funds is another way because gold is a part of multi-asset funds and there you will pay lesser tax compared to an ETF.
As an asset class, gold is turning into this place where you can get solid returns. Do you think that trend is going to continue and should one invest in gold because a lot depends on one’s financial goals and budgets at our disposal? How does buying traditional gold jewellery compare with buying digital gold or gold ETFs or sovereign gold bonds?
Gold jewellery is not investing, it is consumption. You buy a car because you want to enjoy it. You do not buy a car because one day you are going to sell it at a higher price. The minute you pay making charges, GSG etc. and you have to spend money on storage, it is no longer a good investment, it is a consumption because of the making charges.
Gold ETF is a good way to trade in gold. For the gold trader that is a good way to invest. However, if you do not have a demat account, you can go and invest in a gold fund and when you invest in the gold fund that fund goes and buys gold. Again, you do not have to worry about purity of gold etc. because you are only going to redeem the units. You are not going to ever see the gold.
Sovereign gold bonds are bonds issued by the government and one of the most efficient ways of buying gold. However, you may have to hold on for eight years before you get to touch and feel the gold. However, it is liquid enough in the market and so after five years, you will be able to sell it off. From an efficiency point of view, from a tax point of view, not having to pay GST, sovereign gold bonds is the best way to invest.
However, if you want to trade, then a gold ETF makes more sense. So the most efficient is SGB for a long term player because of the eight-year lock in. Next comes the ETF and after that, you can go into gold funds which are a little more expensive than the ETFs. Jewellery you can enjoy but do not treat it as an investment. It is no longer an investment because of the 30% making charges.
When you talk about the solidity of gold as an asset class, now there are options available to buy gold. You can buy it on EMIs as well. A lot more of these new age options are available to millennials and Gen Zs. Do you think gold is as solid as an asset class to buy through the EMI route?
I do not know whether you need to go through the EMI route because you get SGB, sovereign gold bonds, every quarter. So you can buy it every quarter instead of buying every month. But you can always do an SIP into gold instead of buying gold through EMI because gold EMI is more likely for buying coins or chain or jewellery and that is not very efficient. So EMI no, SIP yes, because you are doing the same thing in a more efficient way. Why would you pay interest on buying gold upfront and then paying costs? Because there are years in which gold appreciates at 2% or 1% so your EMI cost will be at 10-12%, no way. EMI makes no sense unless you want to buy it for consumption, then it is a different thing then it is like buying a car. You are buying it just because you want to consume it. EMI no, but yes you are much better off with the SGB if you have got an eight-year view and an ETF if you have got a three-year view. But yes you will end up paying more tax with ETF and less tax with SGB.
When one invests in gold, the possibility of later raising a gold loan shows up. Is that a good reason to buy gold too right now?
We over-emphasise or exaggerate the need for liquidity in all our assets. All our assets need not be liquid but gold is one of the most liquid assets. If you have physical gold, you can just walk to a gold lender and he will lend you at a very good rate. So yes, gold is a good way to borrow money. And in fact, gold loan business is a very big business. Gold is a good way to raise money and gold always appreciates which means the lender is never going to call you up and say, please pay more margins that is not going to happen.
So if you have a short-term requirement, you can raise money against that. If you have a three-month requirement, you raise money against that. But if you have a three-four year requirement, you might as well sell off the gold. Gold is extremely liquid, whether it is ETF or SGB or even physical gold. Gold is an excellent way to raise money, much better than your house or any other asset. Gold is perhaps the most liquid asset to raise money.
One had to balance it out right now between putting in money into equities and these gold investments that we are talking about. What is the percentage of split that you would suggest all things being equal, like risk appetite or financial goals or budgets to invest?
I would rather put it in a multi-asset fund because a multi-asset fund would have 10% of its money in gold. So at any point in time, they will keep selling equity, buying gold or selling debt, buying gold or maybe selling gold and buying equity. That balancing will be done by the fund house and that is more tax efficient than you being able to do it. If you sell gold, you will pay capital gains tax. If you buy more gold, you will pay GST and things like that but if you let the fund manager sell equity, sell debt and buy gold when it is efficient that makes more sense. So a multi-asset fund with 10% in gold or 15% in gold makes more sense and it is more tax efficient also.