E-GOLD VS GOLD ETF

E-GOLD VS GOLD ETF

E-gold is held electronically in the demat form and can be freely converted into physical gold. In India, e-gold is offered by the National Spot Exchange Limited (NSEL), which gives investors the option to invest in commodities such as gold, silver and platinum online. 

Any investor can buy gold in small quantities on the NSEL and sell it after making a profit. He also has the option of taking physical delivery of the metal.

Another way of taking exposure to gold is gold ETFs, financial instruments that track the price of gold. "Gold ETFs are the same as mutual fund units where each unit is equivalent to one gram gold, though some funds give the option to invest in lower denominations of 0.5 gram as well. 

Conversion of gold ETFs into physical gold is possible only after it exceeds a certain size. This can vary from 500gm to 1kg depending upon the fund house.

In gold ETFs, investors track NAVs, which keep changing with gold prices. In e-gold, investors directly track the price of gold.

TRADING BASICS

16 per cent 

is the average return given by e-gold in 2012 as compared to the 11 per cent average return from gold ETFs

Brokerage: Trading in both gold ETFs and e-gold involves payment of a brokerage fee. For e-gold, it is 0.25 per cent of the purchase rate. The transaction fee for gold ETFs is Rs 1 per lakh compared to Rs 3.5 per lakh for equities, says Rego of Right Horizons.

Taxation: Gold ETFs have an edge over e-gold here. For gold ETFs, one year is considered as the long term; it is three years for e-gold. Also, egold attracts wealth tax.

"E-gold is treated like physical gold and qualifies for long-term capital gains benefits if held for three years or more. However, gold ETFs qualify for long-term capital gains treatment after being held for just one year. Gold ETFs are considered financial assets and hence are exempt from wealth tax, which is not the case with e-gold,

Gains from gold ETFs, if sold within one year, are taxed according to the person's tax slab and at 20 per cent (after indexation) if sold after a year. Gains from e-gold, if it is sold within three years, are taxed according to the tax slab and at 20 per cent (after indexation) if sold after three years.

Indexation is adjusting the purchase price with inflation. It leads to a higher purchase price and lowers the tax liability. For instance, if inflation is 6 per cent and the investment is Rs 1,000, the inflation-adjusted price for taxation will be Rs 1,060. This will lower the capital gains. Market Timings: You can trade egold till 11.30 pm, while gold ETFs are available in the market only till 3.30 pm.