How To Diversify Your Portfolio With Gold, And
Keep It Tax Efficient
Geetha settled into the sofa with her evening tea. “Priya,
nowadays everyone is talking about gold again. I already own some jewellery, isn’t
that enough for diversification?”
Priya smiled. “Jewellery is beautiful, Maa. But from a
financial point of view, it’s not the best form of investment. Making charges,
wastage and resale deductions reduce returns drastically. If we think about
gold purely as an investment, there are much more efficient ways to hold it.”
Ria joined in, curious. “Like what? I also tend to buy
ornaments during festivals and call it ‘investing’.”
“That’s what many people do,” Priya replied. “But consider
Sovereign Gold Bonds, Gold ETFs and digital gold. These give exposure to gold
without the disadvantages of jewellery.”
Geetha leaned forward. “Sovereign Gold Bonds; I’ve heard of
them but never paid attention. How do they work?”
“SGBs are issued by the Government of India,” Priya explained.
“The best part is they pay interest of 2.5% per year on the invested amount and
if you hold till maturity, eight years, capital gains are completely tax-free.
So you get both appreciation in gold price and tax savings.”
“That actually sounds very smart,” Ria said. “But what if
someone wants liquidity?”
“Then Gold ETFs are convenient,” Priya replied. “You buy units
on the stock exchange just like shares. If held for more than one year, gains
are taxed at 12.50% which reduces tax significantly. So ETFs work well when you
want to keep the flexibility to buy and sell.”
Geetha thought aloud, “And digital gold?”
“Good for small or gradual accumulation like SIP,” Priya said,
“especially for someone who wants to set aside a specific amount every month.
But it does not enjoy tax benefits like SGBs and sometimes platform charges
apply. I’d treat it as a shorter-term holding, not the core investment.”
Ria nodded. “So if someone wants the best of both worlds, tax
savings plus liquidity, they should mix SGBs and ETFs?”
“Exactly,” Priya said. “SGBs for long-term wealth building,
ETFs for flexibility. Digital gold only if convenience is the priority. And
remember, gold shouldn’t dominate the portfolio. Five to ten percent allocation
is usually ideal. The goal is not to ‘make money from gold’ but to balance risk
in the overall portfolio.”
Geetha smiled, relieved. “Now that makes sense. Instead of
just accumulating jewellery, I’d rather invest smartly and tax-efficiently.”
Priya laughed. “That’s the whole idea, let gold protect the
portfolio, not clutter the locker.”
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