Gold is an excellent safe-haven asset and a hedge against inflation. Moreover, it is inversely correlated with the stock market helping you diversify your portfolio to cushion it against adverse market movements. Financial experts recommend having 5%-10% of the portfolio in gold holdings. Here’s how NRIs can invest in gold.
How can NRIs invest in gold?
Non-Resident Indians or NRIs can invest in physical gold such as jewellery, bars or coins. However, investing in paper gold such as Gold ETFs or gold funds is a better option as it eliminates purity issues, making charges and storage hassles.
NRIs can invest in Gold Exchange Traded Funds or Gold ETFs, listed on Indian Stock Exchanges. It tracks the domestic price of physical gold, where one Gold ETF unit equals one gram of gold. However, NRIs must open a Demat and Trading Account to invest in Gold ETFs.
NRIs must follow a different process to open a Demat and Trading Account compared to Resident Indians. Moreover, NRIs must get a Portfolio Investment NRI Scheme (PINS) Account to invest in Gold ETFs as per FEMA guidelines. It helps NRIs invest in Gold ETFs on a repatriable and non-repatriable basis.
NRIs who don’t prefer Gold ETFs can invest in Gold Mutual Funds. It is a fund of funds scheme that invests in Gold ETF units run by Asset Management Companies (AMCs). Moreover, NRIs can invest in gold funds directly through AMCs and don’t need to open a Demat and Trading Account.
First-timers in gold may opt for Gold Funds rather than Gold ETFs, suitable for DIY (Do-It-Yourself) investors. However, Gold Funds have a higher expense ratio than Gold ETFs as these are fund of funds schemes. You incur the expense ratio of the gold fund and that of the Gold ETF.
NRIs cannot invest in Sovereign Gold Bonds (SGBs) as per the Foreign Exchange Management Act (FEMA), 1999. It is government security issued by the RBI and denominated in grams of gold. However, if NRIs invested in SGBs when they were Resident Indians, they can hold these bonds till the maturity period of eight years or opt for premature redemption.
NRIs can invest in E-Gold similarly to Resident Indians. The National Spot
. or NSEL launched E-Gold in 2010 for people who want to invest in gold with lower denominations than physical gold. NRIs will have to open a Demat and Trading Account with NSEL approved depository participants to invest in E-Gold in India. Moreover, E-Gold units can be traded over the stock exchange similarly to shares, and one E-Gold unit is equal to one gram of gold.
NRIs must check the tax implications of investing in Gold in India. For instance, there is no Tax Deducted at Source (TDS) for NRIs purchasing and selling Gold ETFs through a stock exchange. However, they will have to do a self-assessment when filing their income tax returns. NRIs who opt for direct redemption with mutual fund houses would incur TDS. NRIs must choose the optimum gold investment based on ease of investing and storage.