This article is a must-read for people who love to buy gold ornaments or buying gold for investment or exchanging gold ornaments or for taking a loan with gold as collateral.
Gold retreated to Rs 45000 / 10 grams after reaching an all-time high of Rs 56,191 in Aug 2020 mostly factoring in risks associated with huge stimulus packages that are announced Globally. In the last 3 years, Gold gave a return of about 16.7% CAGR returns in the last 3 years and 10% CAGR in the last 10 years which is phenomenal. The yellow metal is liked by all the women in South India and is also used for industrial purposes due to the conductivity.
What is KDM ?
When you are buying gold we hear the terms KDM, BIS Hallmark, 22 karat, 24 karat, 91.6 kdm hallmark, making charges, wastage charges, value addition etc. These are words commonly used by Gold/ Jewelry stores and it is important that you need to know these terms so that you feel secure about your purchase and not feel cheated post your purchase. Also, knowing these terms help you to bargain better.
Let us empower you with some basics
Purity of Gold
24 Karat Gold : 24 Karat Gold is the purest form of gold with 99.99% purity. This means there are no impurities whatsoever. Gold is commonly mixed with Copper,Silver for strength while making ornaments. The amount of gold vs added copper (or silver) defines the purity of gold and is measured with the term karat. Pure is gold is defined as 24 Karat. 24 Karat gold is generally available in coins and is the best form to hold in coins as jewellers will buy at 100% price of gold and you make most out of it.
22 Karat Gold : 22 Karat means 22 parts of gold and 2 parts of other metal are mixed to make the alloy suitable to make the ornaments. This is equal to (22/24 = 91.6 Mathematically) also called 91.6 Gold. This means that the purity of 22 karat Gold is 91.6%. All the ornaments are generally available in 22 karat gold.
KDM : KDM is a tag embossed on a gold ornament that this certified to have more than 22Karat gold (= 91.6 Gold). Generally, jewelry establishments frequently use the word 91.6 KDM Purity. Once the ornament is made, it is tested for purity on a spectrometer and a KDM tag is attached to the ornament. KDM and 22K gold are used synonymously.
BIS Hallmark: BIS is bureau of indian standards for certifying gold. readmore on this
18Karat Gold : If you go to Shoppers stop, Central you see ornaments made out of 18K gold. This means golds used in making that ornament is 75% (18/24 = .75) pure. If you try to exchange an 18 karat ornament you will get only 75% of the gold value. 18K, 14K gold ornaments are very popular in America and Europe.
Carat Vs Karat : Carat should not be confused with Karat. Carat is used to measure the weight of gem stone and is derived from carat vegetable seed which weighs about 200mg or 1/5th of a gram. This means a 5Carat diamond will weigh 1 gram and should not be confused with Karat. Karat is % and Carat is weight.
Let us understand the Charges:
Making Charges: The beauty of an ornament lies in crafting an artistic design by a goldsmith or with a CNC machine. Buyers look for great designs and a lot of effort goes into decision making to shortlist few great designs. Creating such designs requires great effort and Jewelry stores charge the customer with making charges. Making Charges varies from design to design and is based on the complexity of work involved in making the design. It varies from 3% to 11%. and usually, Jewellers quote about 4% for Bangles and 10% for Necklaces etc. So when you buy an ornament you end up paying approximately 10 % extra for making charges. Since this 10% is a very subjective number, you can negotiate with the Jeweller to reduce the making charges. Jewelers run offers like zero making charges etc. during festive times
Wastage Charges / VA (Value Addition) : A finely finished laser cut gold ornament shines brilliantly. But during the process of making the ornament some amount of gold will go as waste or go as a loss while cutting, soldering, melting etc. These are called VA charge or wastage charges and jewelry stores generally puts a separate charge to buyer for this wastage charges. Generally, the wastage charges again dependent on the type of ornament and the complexity of the process involved in making the ornament. The charges range anywhere between 3% to 14%. 10% is very common. Again you can always negotiate with store for reducing the VA charges as well. Stores run offers like zero wastage charges or 4% wastage charges at times. Again remember, usually Jewelers quote high and then negotiate on the VA and making charges.
So at this point the cost of ornament = 22k gold price + Making Charges + VA Charges
Taxes on Gold
GST : If you are buying an ornament there is a 3% GST on the purchase of Gold and 5% GST on the making charges. If you buy coins then there is a flat 3% GST on the COIN purchase.
Now with the above knowledge let us understand more about when you purchase an ornament.
Buying Gold Ornaments : When you buy an ornament, say 100 Gram necklace, the price will be arrived as follows.
Generally, ornaments are made of 22K gold, which they also called KDM certified (>91.6% Purity). The price of the market is generally displayed at the store and is announced by Indian Bullion and Jewellers Association (https://www.ibjarates.com/) on daily basis. Stores will display 24K and 22K price. Store will inform you the 22K price/gram, VA (wastage), and making charges on that particular ornament (usually mentioned on the tag). Also if the ornament has color stones on it which is common, please ask for the gross weight, net weight, and price of the stones.
Price of ornament = ( Price of 22K gold * Weight in Grams + (approx 10% wastage charges) + ( Approx 10% Making Charges) ) + 3% GST + 5% * Making Charges.
This means an ornament is approximately 20%-25% more the price of Gold in grams. Do negotiate on VA and making charges for maximum gains.
Buying Coins/ Bars: Some people want to invest only in Gold bars, coins but not ornaments. In that case there will be only GST and no wastage or making changes. Total price will be Price of 24K gold * Weight in Grams + 3% GST.
Exchanging the Ornament: Fashion never dies and at times you will change the ornament based on the latest trends. So, when you exchange an ornament, normally stores will add VA from 3% to 10% and then quotes the price of 22k gold based on the weight. And if you are buying gold with that money, it means you are paying approximately 30% extra to get a new ornament.
However on exchanging pure bars or Coins, stores will not charge any wastage charges if you carry a purity certificate or source of purchase or same store purchase.
Buying physical gold will always involve time, trust, storage costs, locker costs, and zero interest. Gold has been giving a consistent return of over 10% CAGR in the last 10 years and is attracting more buyers. Also, Gold is the best hedge for inflation for thousands of years. Gold also grows when there are risks in the economy, during wars, political instability or during unusal inflation. It is always good to have 10% of your portfolio allocated to Gold.
To avoid the costs associated with physical gold, one can buy gold through Exchange traded Funds “ETFs”. Nippon, Kotak, SBI, UTI runs their ETFs which are generally traded in the market. You can buy similar to Mutual fund units and most of the funds are using 1 gram as their base unit. So contact your Mutual fund agent or your Demat/ Equity dealer to buy ETFs .
Soverign Gold Bonds
The government of India is also issuing sovereign gold bonds with 8 year lock-in and 2.5 % Interest rate (taxable) with an exemption on capital gains up on redemption. This is a good option if you wish to wait patiently for 8 years and earn interest and appreciation. These bonds are also tradable on the market so if you wish to exit early there are options but you will lose capital gains tax benefit.
Where to buy Physical Gold Coins?
Coins/Bars : If you want to buy gold coins/ Bars or silver please go to MMTC. MMTC is a government of India organisation and the purity and safety is assured.
HYDERABAD REGIONAL OFFICE
10-2-1, 1st floor, APFDC Complex, A.C. Guards, Hyderabad – 550028
EPABX – 040-3394924, 3376900, 3394960, FAX – 3394923
E-mail : [email protected]
Coins/Bars can also be bought at Banks,Other Jewelery stores but we suggest you to buy from MMTC. Banks are little expensive compared to MMTC or Jewelery stores.
Ornaments : There are several popular stores in Panjagutta, Basheerbagh,Secunderabad. Please check the offers before you shop. Some shops sell on chennai prices and generally chennai price is lower than Hyderabad price. We are not making any recommendation as most of them are reasonably good but the in best store experience was at Kalyan Jewellers. Other good stores are MBS, TBZ,Kazahana, totarams, malabar gold,mangatrai,chennai shopping mall, CMR, Chandana brothers etc. Do compare charges before you buy.
Gold ETS/MF : Contact your Mutual Fund/ Equity advisor.
Finally, all that glitters is not gold. So it is also good to check the purity of your ornament through BIS Hallmark certifying agencies.
Akshya Tritiya and Dhanteras are two big events for gold purchases in India and please use this as a reference guide for your purchases. We would be glad to assist you if you have any queries. Please post your questions in the comments sections and our team will help you in getting the answers.