Why would a retail investor want to convert E-gold or ETF units into Physical Gold?

POSTED BY Free Financial Calculators ON April 23, 2013 9:20 am COMMENTS (14)

I am making a calculator which calculates long term capital gains  (ltcg) for different investment modes. E-gold and ETF are taxed very differently: ltcg duration for E-gold is 3 yrs and ETF is 1 yr etc. If the units are redeemed as physical gold and not as cash then wealth tax is applicable.

My question is: Why on Earth would a retail investor want Physical gold for?

Investing in ETF to create wealth with which one can buy jewels is one thing. It may or may not be the best thing to do. At least it is understandable. What would one do with physical gold?

Take it to a jeweller to make ornaments? That doesn’t sound like a bright idea. Considering chances of impurities being mixed, wastage, inflation in making charges during the course of ones investment etc. Sounds too complicated.

What would a retail investor do with physical gold?

14 replies on this article “Why would a retail investor want to convert E-gold or ETF units into Physical Gold?”

  1. Dear Pattu, all of us are aware for the purity related issue for the fresh ornaments purchased from Jewelry shop. Now what I told above, people believe (although it’s only a myth) that we are giving our gold & from the same gold, the gold smith ‘ll prepare the jewelry & thus we ‘ll not lose on purity. In actual this does not happen, unless, one calls the gold smith in his home & prepare the jewelry there itself. 🙂

    Hope I’m clear to you now.



  2. Dear FFC, there is a misconception prevailing in people’s minds that giving physical gold of 24 carat & then asking for 23 carat gold for keeping the purity intact. Now in actual, the goldsmith honors it or not (the purity of 23Carat) is a different question in itself.

    This is the only logical answer based upon a myth.



    1. Ashal,

      Thanks. I don’t get it. What do they gain by giving jewel maker 24C and asking for 23C or 22C? More weight of jewels? Less wastage?

  3. Ashish says:

    Dear FFC,

    I feel you are right in thinking that why would a retail investor buy Gold. In my opinion, its a a very personal understanding. It shall vary from person to person and you may very unlikely get a concrete answer to this.

    People may buy in gold and keep it with themselves to convert it into ornaments at later stage. Lot of people buy gold (jewellery) thinking they will gift it to their kids on their marriage etc. At the time of marriage they get this jewellery converted into latest designs or ornaments of their choice. Here one pays the making charges twice, once at buying and then at redesigning.

    If one buys pure gold, he saves the making charges at least once. The fear of impurity, mixage etc is constant in both cases.

    Well this is what my understanding is, don’t know what others feel.


    1. Ashish,

      I fully understand personal decisions about owning gold. My question is:

      Why would a retail investor want to convert E-gold or ETF units into Physical Gold?

      1. Ashish says:

        Dear FFC,

        Again, I think no logical answer to this, except that charm of Yellow metal.

        I don’t think most of us are aware of the wealth tax on Physical gold, to be paid on conversion from units to physical gold and hence get the units converted to physical gold.

        A genuine investor think from the point of appreciation and a guided buyer (who is suggested by others to buy ETF / E-gold instead of physical gold) only thinks from the perspective of how much god he is accumulating, no matter if there is any appreciation.



        1. Thanks Ashish, Let us put it this way there is no logical advantage to investing in ETF/E-gold and then converting it into physical gold.

          People who want to accumulate gold for reason best known to them are better off by buying it directly.

          Generally speaking, gold is just another asset which can go up or down. I see no reason to invest in it except for diversification since its movement can be different to other assets.
          Investment automatically implies long term and the most tax efficient way to do is ETF since I can either choose to index the gains or pay flat tax.
          This option is not available with E-gold

  4. Its because life can not be all about money,returns & Taxes.
    How can one make neighbors to feel jealous with ETFs accumulated in demat account!!!

    //P.S: what I have written is a general notion & not necessary my opinion.

    1. illogical answers are easy enough to find. I am only wondering if a logical answer exists.
      Agreed life is not all about money returns and taxes. Unfortunately it is also not about simplicity and commonsense.

      1. Oh..Sorry I forget that this is not space for humorous comments.

        By the way,there are different aspects which retail people consider & most of us aware of it
        1. cash can be raised within a night with physical gold.So feeling of security is higher than owning directly instead via Gold ETfs etc…

        2..Charges like Ornament making charges etc will increase with time & so its do it today attitude.

        3.If considered for next few years Gold rates can be 50,000 or 20,000 …one can’t say…it will all depend how catalysts will catalyse the process but my opinion is any one having requirement in future specifically like childs marriage then better way is to accumulate Physical Gold only in terms of ornaments & not ETfs etc.

        1. The forum has its fair share of humor in many forms. I would be happy to appreciate humor provided it is relevant to my question. Neither are your points 1/2/3.

          1. Its fine…better to stop here.

    2. Sumit says:

      This makes sense sometimes, I have seen people buy foreign novels – which they have not ever read a single page or they have any interest – just to brighten his drawing room and neighbour/guest can praise him. Physical gold definitely upturns his aesthetic significance in society

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