ADOPT A ‘GOLDEN’ STRATEGY
Conversion of physical gold into jewellery may become more cost-effective and tax-efficient
DILIP KUMAR JHA
nvesting in the yellow
I metal may soon become
more lucrative. Even as
buying gold for future use
has always been consid-
ered good, storing it is an issue.
Investing in jewellery per se
does not make sense. If you de-
cide to sell it, you get an amount
15-20 per cent lower than the
market rate of physical gold.
While 10 per cent is deducted
as making charges, another
5-10 per cent is reduced because
of tax and discount on old gold.
But things are likely to get
simpler. Financial Technolo-
gies-promoted National Spot
Exchange (NSEL) plans to in-
troduce an e-gold conversion
facility. This will allow buy-
ers to purchase physical gold
in the electronic format, store
it in a demat account and con-
vert it into jewellery as and
when they wish.
As Anjani Sinha, managing
director and CEO, NSEL, puts
it, “Next month, we will com-
mence talking to jewellers with
BIS hallmark or any other trust-
ed hallmark facility. We plan to
engage at least 10,000 jewellers
across the country by the end
of the current financial year.”
The best part is that the in-
vestor will get a higher carat on
conversion to jewellery. For in-
stance, if an investor purchas-
es gold coins of 10 gram, and
EVEN WORLD GOLD
COUNCIL IS PLANNING
to engage jewellers to
redeem physical gold
as jewellery
wants to convert these into jew-
ellery, he/she will get an addi-
tional 10-15 per cent, depend-
GET STARTED
WITH E-GOLD
STEP 1 Open a demat
account with a
brokerage firm
STEP 2 Accumulate in small
denominations, say
2 grams every month
STEP 3 For delivery to jeweller
or sale in open market,
inform brokerage
STEP 4 Take delivery paper
from the brokerage
and give it to NSEL-
registered jeweller
STEP 5 Pay making charges
of `50-200 a gram
ing on the ornament’s carat val-
ue. This is because the carats
of gold jewellery will always be
lower than gold coins. There
will be a making charge of `50-
200 a gram.
While NSEL’s move is meant
primarily to increase liquidi-
ty at the exchange, long-term
gold consumers can also ben-
efit. Remember a gold demat
account has to be opened with
the brokerage, which will trade
through NSEL.
Even World Gold Council
(WGC) is planning to engage
jewellers to redeem physical gold
as jewellery. Although jewellers
accept physical gold and con-
vert it, there is no set procedure.
Often, a physical gold owner
sells it first, and then purchases
jewellery with the proceeds.
While selling coins or bars,
jewellers often pay lower than
the market price. And while pur-
chasing the jewellery, there is
a making charge over the mar-
ket price.
WGC’s plans, if imple-
mented, will help reduce the
time as well as the transac-
tion cost. “Talks are already on
with jewellery retailers across
the country. The list will be fi-
nalised by March 2011. The pro-
posal will be operational in the
next 12-18 months,” says Ajay
Mitra, managing director (Asia
Pacific), WGC.
Even the jewellers seem en-
thused with this proposal. “If the
redemption option is available
for investors, the demand for
both coins and bars will increase,”
says a Mumbai-based retailer.
In the nine-month period
ending September, however, the
investment demand for gold
doubled — from 65.8 tonnes to
136.9 tonnes in the same pe-
riod the previous year. Similarly,
the total demand for gold jew-
ellery remained robust, record-
ing a rise of 73 per cent at 513.5
tonnes, as against 297.2 tonnes
in the year-ago period.
While opening the account
is free, there is an annual main-
tenance fee of `300. In addition,
when you transact, there is a
brokerage fee of 0.5 per cent.
As far as taxation goes, if
you sell gold in less than three
years, the proceeds are added
to the income and taxed, ac-
cording to the slab. On the oth-
er hand, if you were to sell it af-
ter three years, the taxation will
be 20 per cent with indexa-
tion benefits.
However, since you are con-
verting gold directly into jew-
ellery, there will be no taxation.