Considering investments in gold? Here are 4 ways to do it
Sun Nov 24 2024
The various options available for investors in India to invest in gold are as follows. Buying gold coins/jewellery from a gold shop – This is one of the most basic, simple ways to invest in gold. Wherein the investor buys gold coins or jewellery as per his need and desires. However, while buying gold jewelry in physical mode there are various expenses that are incurred which are as follows
Cost of gold
Goods and Services Tax
Making Charges
Wastage
All these charges make the total acquisition cost of gold much more expensive in comparison to other modes of investment Moreover, if one goes to sell the existing jewelry or gold to the jewelry shop, the customer will get the cost of gold according to the market price. However, if the purity of a jewelry is not up to the mark, the customer may get less funds for the gold being sold hence incurring loss in overall investment.
Coins/Bars are taken by the jewelry shops provided one has the original bills available and the purity of the gold is not tampered with. Buying Sovereign Gold Bonds – Sovereign gold bonds is one of the effective ways introduced by the government of India so that investments can be diverted into digital mode rather than physical. The investments in SGB’s come with following benefits.
It pays interest semi-annually to the investor @2.75% on the initial investment. Zero risk of handling physical gold Investments in SGB’s are tax free if held till maturity period of 8 years. The tenure of the bond is for 8 years with an option to redeem from 5th Year Onwards on the date on which interest is payable.
SGB can be used as collateral for loans It can also be traded on exchange although liquidity might be an issue for the investor Investors having long term outlook can also take the benefit of capital appreciation on gold
No need to pay GST on this as it is a digital mode of investing in gold. It comes with a Sovereign Guarantee both on redemption amount and on the interest as it is backed by government of India
Investing in Gold ETF’s/Gold Bonds
Gold Funds
Pricing – Value of the mutual fund units are derived from the NAV’s at the end of trading session Mode of investment – No demat account required to invest in gold fund. One can invest by visiting the website or branch of a fund house
SIP option: Systematic Investment Plan (SIP) is with small amounts (as low as Rs. 500) at regular intervals. SIP leads to the benefit of power of compounding while keeping investment amount light on one’s pocket
Transaction Cost: A gold fund may or may not charge an exit load at the time of redemption of units
Expense Ratio: Expense ratio refers to the fees charged by a fund house for the administration and management of a fund. While both schemes are passively managed, as a gold fund invests in a gold ETF, gold funds feature a higher expense ratio that a gold ETF Liquidity: The units of a gold fund can be redeemed by selling them back to the fund house at the applicable NAV.
ETF’s
Pricing – One can get the real-time value of a gold ETF from the stock exchange at any time during the trading session Mode of Investment -The units of a gold fund can be directly bought from a stock exchange after opening a Demat account Minimum investment - The option to invest via a SIP is available in case of a gold fund but not in the case of a gold ETF. The minimum investment amount for gold ETFs is generally Rs. 5,000
Transaction costs - No exit load is applicable in the case of gold ETFs since they are traded on the stock exchanges. Expense ratio- While both schemes are passively managed, as a gold fund invests in a gold ETF, gold funds feature a higher expense ratio that a gold ETF
Liquidity: Gold ETFs support intraday trading on stock exchanges and are thus more liquid (easily convertible into cash/cash equivalents) than a gold fund. Trading on the exchanges – To take the benefit of the price volatility, one can trade on the exchanges. However, trading on the exchanges has the following positives and negatives.
Too much volatility will lead to decline in capital investment. One can benefit from buying and selling by trading on the volatility. One needs to have sufficient margin in order to trade. Out of all these options, buying SGB is one of the best and effective ways to buy gold in India. The benefits far outweighs all other options available for investments in India.
In totality, the returns on gold investments does not vary in any of these options as the basic underlying in all the options is gold. However, the returns in trading on exchanges in gold might vary depending on how the individual manages overall risk-return of the investment.
Source: https://economictimes.indiatimes.com/