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Dhanteras gold purchase: Should you invest or make token buys?

If you really want to buy gold, consider digital gold, gold exchange traded fundsand gold bonds

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Dhanteras is important for Hindu households because on this auspicious day, Hindus are supposed to buy new utensils, and gold. These purchases are said to please goddess Lakshmi who then showers households with more of this kind of wealth. But given that gold trades at Rs 30,000 per 10 gram and should be a small portion of your investment allocation, how prudent is it to buy the precious metal for investment?

DNA Money spoke with experts, who suggested that unless there are solid reasons, one should not heavily invest in gold during Dhanteras, when gold prices typically shoot up.

Emotional glitter: Buying gold on Dhanteras is associated more to an emotional connect than to the decision to make investment. "It is considered to be auspicious and thereby has been a tradition to purchase gold on Dhanteras. We do not recommend accumulating gold as an investment in your portfolio. From diversification point of view, one can consider allocating a small portion of your portfolio i.e. not more than 5%, towards gold," says Amar Pandit, founder and chief happiness officer at HappynessFactory.in.

Gold is usually looked upon as an easily bought and easily liquefiable asset that can be relied upon to appreciate well over time. "However, gold jewelry comes with its own associated costs such as making charges, wastage, etc., that add up to the total cost of ownership. Moreover, while liquidating the jewelry, these costs are not recoverable. Also, it may not be very easy to sell jewelry for cash. A lump of gold will remain the same lump of gold and will never produce anything. Its value increases entirely on the belief that eventually someone else will pay more for it," points out Ajit Narasimhan, category head - savings and investments, BankBazaar.

Gold prices have already shot up in recent times, by as much as 7% in last three months, thereby capping potential upside. "Normally gold rates are higher during this time so too much buying should be avoided if bought with an objective of investment," warns Brijesh Parnami, CEO, Essel Wealth Zone.

Better gold options: If you really want to buy gold, consider digital gold, gold exchange traded funds (ETFs) and gold bonds. "If buying in physical form as a part of the investment than one can also consider, gold coins and bars. You'll need a place to store it, beware of signs of fraud and be sure to verify your gold dealer before buying," says Parnami.

Jewellers are optimistic: Tanya Rastogi, director, Lala Jugal Kishore Jewellers says the currency flow in our economy has reached back to the pre-demonetization levels. The decision to remove the gems and jewellery dealers from purview of the reporting requirement under the Prevention of Money Laundering Act (PMLA) is also a relief. "It was really not practical since a lot of people don’t carry all the KYC documents with them," said Aditya Pethe, director, WHP Jewellers.

Digital gold purchases help you avoid storage related problems or side-step making charges. You can make an offer to buy gold at the rate displayed on the Paytm platform in either rupees or grams. For example, you can buy gold worth Re 1 and above or 0.1 gram and above. Motilal Oswal Securities Ltd. (MOSL) has also launched digital gold product named Me-Gold on its mobile and web platform in partnership with MMTC-PAMP India. Kishore Narne, head of commodities, MOSL says this is like getting pure gold at the convenience of buying from home in a quantity customer wants to.

If you are looking to invest in gold, buying jewellery or physical gold is not your only option. "Several MF houses closely track the value of gold and have gold-backed mutual funds. The Government of India's gold bonds are also a good option if you are looking to stay invested for eight years or more. These bonds are issued periodically, and their value increases exactly with gold. They also provide an extra interest of 2.5% per year. Unlike gold mutual funds, the gains from the gold bonds are tax-free. Any capital gains arising out of redemption of sovereign gold bonds is tax exempt. This makes it very similar to holding physical gold with a 2.5% a year bonus," advises Narasimhan.

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