Investing in Gold in India: All you need to know

Gold Investment in India
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Gold has been a common investment instrument for people since long ago. People used to keep gold jewelries, bars, and coins with them as the yellow metal is often seen as something that can help during a financial crisis. We can also get a loan on gold and enjoy low interest rates. There are a number of benefits of investing in gold, the most important one being that it helps us during inflationary periods when all other investments fail to perform. 

Earlier people had to buy physical gold if they wanted to invest in gold. However, now we have a number of options. You don’t need to go to a goldsmith and buy gold against cash in order to start gold investment. What can you do? In this article, we will discuss the best three ways to invest in gold and try to figure out which one is the best. However, before learning about any type of gold investment, it is important to know why you should invest in Gold in the first place.

What will you learn?

  • Benefits of investing in Gold
  • Top ways to invest in Gold
  • Advantages of investing in Gold online
  • Comparison between Digital Gold, Gold ETFs, and Gold Bonds
  • Why is SGB the best way to invest in Gold?

Why Should You Invest in Gold?

There are several reasons for investing in Gold-

Hedge against Inflation

Investing in gold helps you to hedge against inflation. It is seen that the price of gold increases during inflationary periods, which compensates for the loss that you may incur through your other investments- like equities, mutual funds, etc. This helps you to diversify your investment portfolio and minimize losses to a great extent. Your portfolio should include at least 5% of gold investment.

Earn Stable Returns

Gold price do not fluctuate much, i.e.; they are less volatile. This enables you to earn steady returns in the long term and minimize risk to your overall portfolio.

High Liquidity

Most of the gold investment instruments are highly liquid. You can sell digital gold or redeem your Gold ETF units anytime you want.

Multiple Investment Options

There are several ways of investing in Gold- Digital gold, Gold ETFs, and Gold Bonds, each having their own benefits. The best part is that you invest in all these three instruments online without facing any hassle.

Safe and Reliable

If you invest in gold online through buying digital gold, investing in Gold ETFs, or SGBs, you will enjoy complete reliability and safety of your investment. This is because the companies selling digital gold are licensed by the government, the Gold ETFs are from the reliable fund houses regulated by SEBI, and the SGBs are issued by RBI itself.

Tax Saving Option

Investing in Gold through SGB allows you to enjoy tax saving benefits. Your gains will be exempted from long term capital gains taxes if the investment is held until maturity. 

How to Invest in Gold?

Today we have multiple ways to make gold investments in India- Buying Digital Gold, and investing in Gold ETF and SGB (Sovereign Gold Bonds). Before comparing the three, let's have an overview of each of the investment ways.

Buying Digital Gold

The simplest way to invest in gold without going through the hassles that come with physical gold is by buying digital gold. Digital gold is nothing but buying actual gold virtually. You can buy digital gold online easily as there are a number of platforms that offer this service. In India, there are three main companies licensed to offer digital gold- MMTC-PAMP India, Augmont Gold Ltd, and Digital Gold India. They sell digital gold through a number of platforms like INDmoney, PayTm, PhonePe, etc. Buying digital gold has a lot of advantages over the traditional way of purchasing physical gold.

Advantages of buying digital gold

  • Safety: When you buy digital gold, an equivalent amount of actual gold is kept in a safe locker with the company selling the gold. For this, the company may charge a fee but you don’t have to worry about the safety of the gold against theft or burglary. 
  • Complete assurance: Buying digital gold saves you from going through the hassles of identifying the purity of the gold. When you buy gold from the local market, there is always a chance of fraud. However, digital gold purchased from the aforementioned trusted companies has a purity of 99.5%, i.e; the 24k gold. Since these companies are licensed by the government, you can invest your money without giving second thoughts.
  • Minimum investment: You can invest as little as Re 1 in digital gold. 
  • Redeemable to physical gold: You can redeem the digital gold into gold coins, bars, and billions and get the same delivered to your doorstep.
  • Safe from physical damage: You do not have to worry about the wearing and tearing of the bought digital gold.
  • Highly liquid: Digital gold has very high liquidity. You can sell the gold online easily without any hassle. This is unlike physical gold, in which you need to find a proper place in the local market where you can get the best price.
  • Can be used to avail loans: Just like physical gold, you also avail loans using digital gold as collateral.

This brings us to the other way of investing in gold- Gold ETFs.

Investing in Gold ETFs

Gold Exchange Traded Funds or Gold ETFs are yet another popular way of investing in gold. It is a type of investment instrument that tracks the price of the yellow metal and allows investors to capitalize on the same. You can buy units of a Gold ETF in the same way you buy stocks. These ETFs are traded during open market hours and anyone with a Demat account can invest in them easily. Just like digital gold, Gold ETFs also have several benefits.

Advantages of Investing in Gold ETFs

Easy trading: Investing in Gold ETFs is no different than investing in stocks. You just need to have a Demat account in order to start trading in these instruments. In a Gold ETF, you have to buy in multiples of 1 unit of Gold which is equal to 1 gram of actual Gold.

Tracks gold prices: Gold ETFs track prices of real gold, which is a great alternative to buying physical gold that brings a lot of hassles along with itself. 

Completely safe: Gold ETFs are managed by asset management companies and expert fund managers. They ensure that your invested funds remain safe and you get the most out of it.

Utmost transparency: Gold prices are publicly available on the stock exchanges. You can check the live gold prices and make trading decisions accordingly. This helps you to properly strategize your entry and exit point.

Inexpensive: The only cost that you need to bear while trading in a Gold ETF is the brokerage charges. You don’t have to pay any entry or exit load for investing in Gold ETFs.

Highly liquid: You can sell digital and physical gold mostly to the company from which it has been purchased and to a goldsmith respectively. This makes the liquidity very limited. However, in Gold ETFs, the units are traded among a huge number of traders in the live market. This creates high liquidity as compared to digital and physical gold.

There are a number of Gold ETFs in the market. Here are the top Gold ETFs based on their historic performance:

Gold ETFIssuerSymbolLaunch Date
Axis Gold ETFAxis Mutual FundAXISGOLDNov 2010
Birla Sun Life Gold ETFBirla Sun Life Mutual Fund BSLGOLDETFMay 2011
Canara Robeco Gold ETFCanara Robeco MFCANGOLDMar 2012
HDFC Gold Exchange Traded FundHDFC Mutual FundHDFCMFGETFAug 2010
ICICI Prudential Gold Exchange Traded FundICICI Prudential Mutual FundIPGETFAug 2010
IDBI Gold ETFIDBI AMCIDBIGOLDNov 2011
Kotak Gold Exchange Traded FundKotak Mutual FundKOTAKGOLDJul 2007
Quantum Gold FundQuantum Mutual FundQGOLDHALFFeb 2008
Reliance Gold Exchange Traded FundReliance Mutual FundRELGOLDNov 2007
Religare Gold Exchange Traded FundReligare Mutual FundRELIGAREGOMar 2010
SBI Gold Exchange Traded SchemeSBI Mutual FundSBIGETSApr 2009
UTI GOLD Exchange Traded FundUTI Mutual FundGOLDSHAREMar 2007

Now we are left with the third and final type of gold investment in India. Last but not least, Gold Bonds are an interesting and highly preferred vehicle for making investments in the yellow metal.

Investing in Gold Bonds

Gold Bonds, commonly referred to as Sovereign Gold Bonds or SGBs in India are government securities that track the exchange value of real gold. Introduced in 2015, SGBs have gained a lot of popularity as an alternative to investing in physical gold. Being issued by the government, these investment vehicles enjoy a high level of trust among investors. SGBs are largely different from all other types of gold investment instruments. This makes it important to learn the characteristics of SGBs.

What are SGBs (Sovereign Gold Bonds)?

  • SGBs are the type of gold bonds issued by the Reserved Bank of India and are backed by the government. 
  • They are issued by the RBI in regular tranches, the dates and prices of which are announced by the RBI itself. Investors also get a discount on the price of gold if the investment is made online.
  • Like Gold ETFs, one can invest in SGBs in multiples of 1 unit, which is equivalent to 1 gram of real gold.
  • Apart from the capital appreciation that comes with the increase in value of gold, investing in SGBs also enables you to earn a fixed rate of interest, which as per the latest issue is 2.5%.
  • The annual interest rate offered in SGBs is 2.5% and the interest is credited semi-annually.
  • In general, SGBs have a lock-in period of 8 years. However, you can redeem the units after 5 years as well. The value of the redemption will depend on the prevailing price of gold.
  • SGBs also let investors enjoy complete long term capital gains tax exemption if the investment is held till maturity, i.e; 8 years. However, they attract a long term capital gain (LTCG) tax of 20% if redeemed before the maturity date.
  • The units of SGBs are held in the Demat account and can be traded on the stock exchanges.
  • The government designates several banks to extend the issue of SGBs.

Having different characteristics, SGBs also offer unique advantages when it comes to investing in Gold in India.

Advantages of Investing in SGBs

  • SGBs come with government’s backing and are issued by the RBI, which make them a very reliable and safe investment vehicle.
  • Apart from the capital appreciation, you also earn a fixed interest by investing in SGBs, which as per the last tranche is 2.5%.
  • The interest offered in SGBs is credited to your account semi-annually.
  • If the SGB investment is held until maturity, you will not have to pay the long term capital gains tax.
  • Although the maturity period is 8 years, you can redeem your investment after 5 years as well.
  • SGBs give you the opportunity to earn from gold in the long run through its 8 years lock-in period.
  • Investing in SGBs is very easy as they are available on a number of online platforms. Although, you can invest through offline means as well.
  • You will also receive a discount in gold prices if you invest in SGBs through an online medium.

Having learned about the three most popular gold investment methods, let us compare these three to have an overview of which one is the best. 

Digital Gold vs Gold ETF vs Gold Bonds (SGBs)

BasisDigital GoldGold ETFGold Bonds (SGBs)
Safety, security, and reliabilityThe physical gold kept against the bought digital gold remains safe and secured in a locker.Gold ETFs are launched by registered and regulated fund houses and hence are reliable.Issued by RBI and backed by the government, SGBs are a completely reliable gold investment instrument.
ReturnsThe returns are based on the actual price appreciation of real gold.Gold ETFs track the price of real gold and hence the returns also depend on the increase/decrease in the price of gold.Apart from capital appreciation from the increase in price of gold, SGBs also offer a fixed rate of interest on the investment, which of the latest issue is 2.5%.
LiquidityHighly liquid- can be redeemed at any time and can also be converted and delivered in the form of physical gold (coins, bars or bullions)Highly liquid- can be traded live during active market hours.Comes with a lock-in period of 8 years but can also be redeemed in 5 years.
CostThe cost may include keeping charges, charges to convert into physical gold, transaction charges, etc.The only cost included is the brokerage fee incurred during buying and selling of the units.Minimal cost- mainly transaction fee 
Tax savingsDo not offer any tax saving benefits. Gains on investments held for less that 36 months (STCG) will be taxed according to the taxpayer’s income tax bracket. On the other hand, investments held for equal to or more than 36 months are considered LTCG and are taxed at 20% along with an additional cess of 4% and indexation benefits. 

No tax saving benefits. The taxation rules on returns from Gold ETFs are the same as that of digital gold.


 

Less than 36 months (STCG)- As per the taxpayer’s income tax slab


 

Equal to or more than 36 months- 20% + 4% cess (and indexation benefits)

Offers tax saving- no long term capital gains tax if the investments are held until the maturity period.

If the investment is redeemed after 5 years, it will attract LTCG tax, which is 20% along with 4% cess and indexation benefits.
Ways to investThe easiest way to invest in digital gold is through applications like INDmoney. No Demat account is needed.Platforms that offer to trade in Gold ETFs. The investor will also require a Demat account.No Demat account is needed. Investment can be made both online and offline. If invested through online channels, you will also get a discount of the price of gold.

Based on the above comparison, it is clearly visible that all the three gold investment instruments are better than buying physical gold. Also, the answer to how to invest in gold in India is also pretty simple- you can invest online without any hassle. 

When it comes to choosing the best out of the three online gold investment options, it can be said that SGBs offer more benefits than buying digital gold and investing in Gold ETFs. The reasons are quite obvious - utmost safety and reliability, additional fixed returns apart from capital appreciation, tax saving option, and discount on gold price. All these are exclusive to SGBs!

  • How to invest in gold in India?
  • How to invest in gold for beginners?
  • What are the charges included in investing in gold online?
  • Do I need to have a Demat account to invest online in Gold?
  • What is the purity of digital gold?
  • Can I redeem SGBs before maturity?
  • On what price the returns from SGB investment will be based?
  • Are returns from SGB investment guaranteed?
  • How can I invest in SGB?
  • How can I save tax on gold investment?
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