New investors have to pay 2% extra to invest in virtual gold.
The increase in custom duty on gold bar to 4% from 2% and on non-standard bar to 10% from 5% will impact gold ETFs and fund of funds too.
“Now, new investors will have to shell out 2% extra to invest in gold ETFs and fund of funds. But it is still a better option to invest in virtual gold than physical because the investor does not have to pay excise duty,” says Chirag Mehta, Fund Manager – Commodities, Quantum.
Vijai Mantri, CEO, Pramerica says existing ETF investors will benefit. “The existing ETF investors are in a better position than new investors because their ETF value has gone up. For new investors, the NAV will increase i.e. it will become expensive,” says Vijai Mantri, CEO, Pramerica.
Industry experts shared that this move of FM to raise custom duty was mainly due to import of gold last year. The Finance Minister in his budget announcement said, “One of the primary drivers of the current account deficit has been the growth of almost 50% in imports of gold and other precious metals in the first three quarters of this year.”
This is still an opportunity for new investors to hold virtual gold without paying excise duty but IFAs are seeing a dip in this category of investment. “In the last two months, there is less interest among investors to invest in gold ETF and fund of funds. The euphoria to invest in this category has vanished. After the budget announcement, investors are staying away from it,” said Mukesh Dedhia, a Mumbai-based IFA.
The net inflow in gold ETFs was, merely Rs. 85 crore in February and Rs. 82 crore in January this year. On the other hand, net inflows reached Rs. 988 crore and Rs. 455 crore in September and October last year respectively.
AMCs are still trying to
educate investors about the advantages of holding virtual gold. “Gold as an
asset class has been growing.Every investor should have some amount of
investment in this class.We have been promoting this asset class for a long
time. By investing in gold ETF, the investor is exempt frompaying excise duty,
besides saving 1% in TDS (tax deducted at source) for cash-based bullion and
jewellery transactions above Rs. 2 lakh
that has been recently introduced,” said Himanshu Vyapak of Reliance.
