TomorrowMakers

Gold remains a valuable asset in India, and a gifting option. However, with the advent of digital gold options such as SGBs and ETFs, traditional buying of physical gold may not be the smartest choice.

Gold gifting options

Gold gifting options this festive season

India loves gold. It is the largest importer and consumer of gold in the world. Gold imports rose to over 1000 tonnes in 2021, up by 27% since 2019. While 2020 saw a dip in demand due to the pandemic, India is back to consuming gold like never before.

Also read: Top 10 Countries With The Largest Gold Reserves

Why does India buy gold?

Gold has been a status symbol for centuries, weaving itself into the culture and traditions of its diverse people. Here’s how India uses its gold:

Religious purposes
Gold is often used to decorate idols, and even temples to showcase richness in purity and devotion. Some of the richest temples in India have vast amounts of their riches in the form of gold.

Familial traditions
Gold is often passed down from one generation to the other as a form of wealth, and heirloom. It also saves on buying gold at current prices which are invariably higher.

Gifts
Gold is considered auspicious, and often makes for gifts, especially in weddings. Gifting gold may even be considered the highest form of gifting in India.

Investment
Gold is considered as the absolute safe choice of investment for many Indians. It is an investment safe against inflation, and is considered auspicious, while the value is expected to constantly rise.

Considering the value – both cultural and financial, that gold has in Indian society, it makes for a smart gifting option, especially in the festive season. A receiver of gold is highly unlikely to be dissatisfied with the gift – given its appreciable value.

Also read: Gold Price In India: Is Buying Gold As An Investment A Wise Thought? Expert Views On Gold Investments.

What kind of gold should you gift?

There are several forms of gold one can buy.

1. Physical gold

Physical gold comes in the form of coins, jewellery, and bars, and is one of the few assets that can be kept confidential. Jewellery can be gifted on birthdays, or weddings, and while it can be liquidated easily, it does present some challenges.

Points to note:

  • GST charges – you would have to pay tax on top of the price of gold if buying from a GST-registered outlet, which is the recommended option anyway.
  • Making charges – On top of the price of gold, and GST, you would also pay extra for making charges.
  • Material loss – While making the piece of jewellery, some gold may be wasted, but the cost of the entire gold used will still be charged, even though the final product may not have the same amount of gold.
  • Packaging charges – This is yet another cost, in addition to the other costs mentioned above.
  • Storage – Finally, storing the jewellery, coins, or gold bars in bank lockers is yet another cost to consider, though it is mainly for the recipient. The appreciated value would be diminished given the cost involved in keeping the asset safe.

2. Paper gold

Paper gold comprises sovereign gold bonds (SGBs) and gold exchange-traded funds (ETFs).

Gold ETFs – Gold ETFs work similarly to holding stock in a company. You can sell your holdings in the exchange, or gift it to someone, as you would, equity. One unit of ETF is equal to one gram of gold, and it is also backed by a gram of physical gold of 99.5% purity. So, when one gifts 10 ETF units, they are practically gifting 10 grams of gold to the recipient. Furthermore, the profits made on selling the ETFs are added to the individual’s income and taxed accordingly. If they’re held for more than three years, then they attract long-term capital gains tax (LTCG). This, however, is a convenient gift as the recipient does not have to worry about keeping gold safe.

Also read: How To Invest In Gold ETFs?

SGBs – These are issued by the Government, and is therefore considered a safe investment option. It is also quite convenient given that it can be bought online, and transferred as a gift as well. Digital applications for SGBs also attract a Rs. 50 discount per gram. Furthermore, the price of SGBs is linked to gold of 999 purity.

SGBs offer 2.5% interest on the investment price bi-annually. SGBs come with a maturity period of eight years, at the redemption of which the returns are tax-free. There is no cost involved in keeping the investment safe, however, interest received is added to taxable income, and LTCG is also applicable if it’s sold before the maturity period.

Also read: Sovereign Gold Bond Scheme 2022-23: What Should An Investor Know About This New Scheme Before Investing?

Best choice

Both these forms of gold investment – whether physical or digital, are great gifts for long-term wealth creation. However, digital gold comes with fewer caveats, while remaining low-risk and high value. It does not require extra cost by way of safekeeping the asset, or making charges, etc. While it may not be as visually impactful as gifting physical gold, digital gold edges out its counterpart in terms of practicality, convenience, and overall value.