Why invest in gold?
The yellow metal Gold in the form of jewelry is not only just used as a wearable by women but also works as an instrument to tide over any financial emergencies.
So, buying gold has traditionally been a financial support system over the bygone ages.
Today in the market there are many ways available in front of investors to invest in gold. There are two ways to invest in gold which can be described as paper and physical form.
It can be bought physically in the form of jewelry, coins, and gold bars and while for paper gold one can buy gold through gold exchange-traded funds (ETFs)
Then there are gold mutual funds (fund of funds) which invest in the shares of international gold mining companies on behalf of investors physically gold, can be bought through jewelry shops nowadays Few jewelers allow placing an order on their websites too via the internet Further, it can be done through e-commerce websites such as Amazon India, Paytm and Snapdeal Flipkart, etc where one can buy gold coins online to get the coins delivered at their homes or in electronic wallets.
Ways to invest in gold.
Jewelry and ornaments
Since the dawn of time, Indian women certainly cherish possessing gold.
But owning it physically in the form of jewelry has its own concerns related to safety, high costs, and outdated designs.
Then there are the ‘making charges’, on jewelry items which could prove to be a very costly affair and dent a hole in the pocket of buyers. The making charges on gold jewelry could typically range between 6 percent and 14 percent of the original cost of gold (may go as high as 25 percent in case of special customized designs) are irrecoverable.
Gold Coin Scheme
Gold coins can be purchased from jewelers, banks, non-banking finance companies, e-commerce websites.
The government of India has launched indigenously minted coins of gold which will have the National Emblem of Ashok Chakra engraved on one side and Father of the Nation
The coins are available in denominations of 5 and 10 grams and the bars will be for 20 grams.
The Indian Gold Coin and Bar is of 24 karat purity and 999 fineness carrying special algorithms such as advanced anti-counterfeit features and tamper-proof packaging.
All coins and bars are hallmarked as per the BIS standards.
These coins are distributed through distinct, designated, and recognized MMTC outlets and through specified bank branches and post offices.
MMTC also offers a transparent ‘buy-back’ option for Indian Gold Coin through its showrooms across India.
MMTC will repurchase the gold coin and bars, intact tamper-proof packaging, and with the original invoice, at the prevailing market gold base rate.
Gold Saving Scheme
Gold or jewelry savings schemes are available in two forms.
A traditional one allows you to deposit a fixed amount every month for the chosen tenure.
When the term ends, gold can be bought from the same jeweler at a value that is equivalent to the total money deposited, including a bonus amount.
This conversion is done at the gold price prevailing on maturity.
As an incentive to promote gold purchase the jeweler adds a month’s installment and at the end of the tenure as a cash incentive or may even offer some gift.
The lucrative ideas of jewelers are certainly promoting a new habit of ‘Invest in gold’ in the mind of youngsters.
Exchange-Traded Fund (ETF)
An alternate modern way of owning paper gold in a more cost-effective manner is available through gold exchange-traded funds (Gold ETF).
The buying and selling happen on a stock exchange (NSE or BSE) with gold as an underlying asset.
Further ahead, the high initial buying and even selling charges that go into owning jewelry, bars, or coins gives an upper extra edge to the low-cost gold ETF’s.
The transparency in the pricing of ETFs is another added advantage.
The price at which gold ETF is bought is probably the closest to the actual price of gold and therefore the benchmark is of physical gold price in the real-time market.
To invest in gold ETF what all is needed is a trading account with a stockbroker and a Demat account.
The ETF can be either bought in lump sum value or even at regular intervals through systematic investment plans (SIP).
Gold ETF can be bought from as little as 1 gram.
While Gold ETF’s offer extra advantage it also comes with its drawback Even though there are no entry or exit charges there are three costs that are incurred while investing in Gold ETF’s –
- One is the expense ratio involved (for managing the fund), However, it is generally low compared to other mutual funds and is around 1 percent.
- Second, is the brokerage cost while investing which needs to be accounted for every time you buy or sell gold ETF units.
- Third, which technically cannot be labeled as charge but impact the overall returns is the tracking error of gold ETF, which arises due to the fund’s expenses and cash holdings thus not mirroring actual real-time gold prices.
The gold ETFs we recommend are Axis Gold ETF and SBI Gold ETF.
Sovereign Gold Bonds (SGB)
Invest in gold via SGB’s. Sovereign Gold Bonds is yet another way of owning paper gold. These are issued by the government bodies but availability is not an ‘on-tap to click basis’. Instead, the government intermittently opens a window for the fresh sale of SGBs to investors on periodic bases which are divided into tranches. Generally, this could take place every 2-3 months and the window remain open for about a week for buying gold in SGB’s. While for investors who are looking to purchase SGBs anytime in between this cyclic window the only way out is to buy earlier issues at market prices which are listed in the secondary market. SGB’s are stored in electronic form in the Demat account of investors.
Digitally gold can now be purchased online. Investors can buy gold coins, bars, and jewelry online. ‘Digital Gold’, is offered on the mobile wallet platform such as Amazon, Paytm, PhonePe, and other e-commerce sites, GoldRush is offered by the Stock Holding Corporation of India (NSE and BSE) while Motilal Oswal has launched Me-Gold, a digital gold online investment. Digital gold in India is offered in association with MMTC – PAMP, (a joint venture undertaking between public sector MMTC and Switzerland’s PAMP SA).
Gold Mutual Fund
Gold Mutual Fund is another attractive option like gold ETF’s and SGB’s. Available for speculative investors to park their funds in golden metal.
These gold Mutual Fund are operated by big fund houses and treasuries, which are managed by designated fund managers
Some famous gold Mutual Fund scheme available in the market are as follows –
- HDFC Gold Mutual Fund
- Kotak Global Gold Fund
- Invesco India Gold Fund
- Axis Gold Fund
- Sbi Gold Fund
The benefit of investing in a gold fund is that it’s operated by specially qualified managers.
It also is added in a hybrid form of debt plus gold fund, gold plus equity fund.
Like Gold SGB’s and Gold ETF’s,
A gold mutual fund can also be used to avail loans in banks and NBFC. Muthoot Finance and Manapuram finance offer this facility.
For more information regarding gold read further on Investo Lingo.