Best Ways To Invest In Gold

Of all the precious metals, ‘gold’ is widely considered a robust investment option. Recent data shows (January 2021), India’s demand for gold investment picked up by 8%, which was the highest in two years.

Gold is particularly favoured because it has historically generated higher returns during bearish equity markets, economic turbulence, geopolitical tensions, and inflation. In case you are considering investing in gold, read through the following section to learn about the various options you can explore to that end.

Gold Investment Options: 

Gold Bars And Coins:

Basics About Gold Bar And Coin 

As an investor, you can buy gold bars from jewellers, banks or online stores, NBFCs, etc. These are available in various customised weight options from as low as 5 gms to even 1 kg and are measured in Karat. The higher the Karat, the higher the purity level. 

Gold coins are available in the market ranging from 0.5 grams to 50 grams, and the denomination depends on the buyer’s preference and demand. Similar to gold bars, gold coins also carry a hallmark certificate. For investment purposes, it is best to buy gold coins of 24 or 22 Karat. 

Please note, while buying gold bars and coins, you have to pay making charges and even refining and transportation costs in some cases. 

Key Risks

  • Theft 
  • Purity issues

Key Costs-

  • Making charges
  • Insurance/storage charges
  • GST

Why Invest In Gold Bars And Coins?

  • It can be liquidated easily 
  • Ideal for long-term investment

Gold Backed ETFs 

Basics About Gold ETFs 

Gold Exchange Traded Funds (ETFs) are listed and traded on the NSE and BSE. To invest in gold ETFs, you need to have a dematerialised account (Demat) and a trading account. 

Investment in Gold ETFs is similar to stocks and can be sold or bought at the same price pan-India. However, while selling gold ETFs, you cannot get access to physical gold but cash. In terms of purity, each unit of Gold ETF represents ½ grams of 24 Karats of physical gold. 

Key Risks –

  • Market risks due to the volatility of gold prices

Key Costs – 

  • Brokerage fees
  • Demat account charges
  • Expense Ratio

Why Invest In Gold ETFs?

  • Sold at current market rates, hence, transparently priced.
  • Does not involve making or premium charges. 
  • No issues regarding purity, storage, and insurance.
  • Portfolio diversification
  • Cost-effective investment tool.

Sovereign Gold Bonds

Basics about Sovereign Gold Bonds 

RBI issues SGBs on behalf of the Indian government. These securities are denominated in grams of gold. Investors can buy a limited amount of gold (4kg for individuals, 4kg for Hindu Undivided Family, 20 kg for trusts and similar entities) in a fiscal year. 

Investors have to pay an issue price and can redeem the bonds in cash on maturity. SGB bonds come with a fixed interest rate on the initial investment, which is 2.50% per annum and is payable by the issuer. The interest will be credited to the investor’s account semi-annually.

SGB comes with a tenor of up to 8 years where investors can choose to exit after the 5th, 6th, 7th years. Investors can trade SGBs on the stock exchange within a fortnight of issuance to make an early exit (if they wish). 

Key Risks- 

  • Capital loss if gold’s market price drops. 

Key Costs -

  • No high costs are related to SGB.

Why Invest In SGB?

  • Fixed income (in the form of periodic interest payments).
  • Does not involve making charges.
  • Free of purity issues.
  • Eliminated storage costs and risks.
  • Can be accepted as collateral for loans.
  • Capital gain tax exemption (in case of ‘individual investor’)

Gold Funds

Basics About Gold Funds 

Gold funds invest in physical gold, stocks of syndicates producing and distributing gold and gold mining companies. These mutual funds also invest in gold ETFs. You can invest in gold MFs through online platforms or distributors. 

Key Risks – 

  • Individual stock risk (in the case of gold mining and distribution companies).
  • Currency exchange risks.

Key Costs –

  • Entry and exit charges
  • Management of gold funds

Why Invest In Gold MFs?

  • Easy to liquidate (on short notice)
  • Flexible investment amount
  • Safe investment tool as the Securities and Exchange Board (SEBI) regulates it in India 
  • Suitable for investment portfolio diversification
  • Safe investment mode (due to its electronic investment nature)
  • Disciplined investment through a Systematic Investment Plan (SIP) 

Digital Gold

Basics About Digital Gold

Digital gold is a safer, easier, and faster mode of investing in gold online. You can buy digital gold in grams or rupees. Once an investor completes the gold purchasing process, an equivalent amount of gold is stored by the provider and secured in third-party vaults under the investor’s name. Investment in digital gold helps you to hedge against stock market risks and inflation. 

There are several digital platforms/online marketplaces, such as KredX, via which you can invest in digital gold. 

Key Costs – 

  • 3% GST
  • You have to pay delivery charges in case you choose to convert your holdings in the physical form)

Key Risks – 

  • No such risks are related to digital gold investment. 

Why Invest In Digital Gold?

  • The purest form of bullion (99.9% purity)
  • Helps in portfolio diversification
  • Transparent pricing (gold purchased at live market rate)
  • Gold is stored in secured vaults.
  • Easy selling options.
  • Transactions can be tracked easily through the investor’s account 
  • You can use it as collateral for online loans

Investment in the gold market (be it a small ticket or large ticket) must involve thorough market research and detailed knowledge about the intricacies of various investment tools. While there are multiple factors to evaluate, you need to decide between your financial objectives and affordability primarily.