Investing in Gold in India: All you need to know

Gold Investment
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Gold is one of the most precious metals in the world. Gold is also considered a valuable investment instrument. It is known to offer higher returns than most other investment instruments during times of inflation. The traditional way of investing in gold in India has been possessing it in a physical form such as coins, bars, jewelry, etc. However, there are other ways as well for making investments in gold. We will learn all the possible ways through which you can invest in gold and also understand how investing in gold can prove to be highly beneficial.

How to Invest in Gold in India

Gold investments instruments can be broadly classified under these categories- 

  • Buying physical gold: This includes purchasing gold bars, coins, and ornaments.
  • Gold ETFs: It is a direct way of investing in gold without actually holding the gold physically.
  • Gold mutual funds: It includes a number of gold funds that invest directly or indirectly in gold.
  • Sovereign Gold Bonds (SGB): These are the bonds issued by the apex bank of India (Reserve Bank of India) on behalf of the government. In SGBs, the gold is sold on a per unit basis.
  • Digital Gold: It is the most direct way of buying gold in virtual form.

Buying Physical Gold

Buying physical gold is the most straightforward and direct way of investing in gold. You can buy gold in the form of coins, bars, or jewelry from the market and store the same at your residence or any other convenient place. 

Advantages

  • Unlike other forms of investing in gold, there is almost no paperwork and formalities associated with buying and selling physical gold.
  • You do not need to have a Demat account to buy physical gold.
  • Changes in the market price of gold will directly affect your gain/loss based on the amount of gold you possess.
  • Other than the price of the gold, you do not need to pay any additional charges while making the purchase.

Disadvantages

  • Since you have to buy gold from the market on your own, there are chances that you might get fudged by a fraudster.  
  • In most parts of the transaction, you need to depend on the trustworthiness of the seller. The purity of gold, exact weight, quotation of prevalent market price, etc., are some of the things that you need to know before purchasing physical gold from the market.
  • The possession of physical gold also brings the possibility of theft or burglary.
  • You need to keep the gold coins, bars, or jewelry in a safe and secure place where they do not get much wear and tear.

How to Invest in Physical Gold?

  1. The first and foremost step is to find a trustworthy goldsmith or a retailer who deals in gold. You should also learn to read and understand hallmarks and other important information before purchasing physical gold.
  2. Check the current market price of the gold and make charges. If you only wish to buy gold for investment purposes, go for coins or bars that have minimum making charges. 
  3. Pay the price of the gold and keep the purchase receipt as safely as you will keep the gold.

Gold ETFs

Gold exchange traded funds or Gold ETFs are passive funds that invest in the gold commodity. Just like other ETFs, gold ETFs are also traded like stocks on stock exchanges. Each unit of a gold ETF scheme shows the value of 1 gram of gold with 99.5% purity.

Advantages

  • You can purchase a proportionate value of gold based on how much money you want to invest. This allows you to invest in gold without actually buying the same in physical form.
  • You can buy and sell units of gold ETF within a moment and right at your fingertips. Hence, unlike the case of physical gold, you do need to wander in a market to buy or sell gold whenever the right opportunity arrives.
  • Since you are not holding physical gold, there is also no risk of theft or burglary with Gold ETFs.
  • Fluctuations in gold prices directly affect your investment in Gold ETFs.
  • You do not have to worry about the physical wear and tear of the gold.

How to Invest in Gold ETFs?

  • Since gold ETFs are just like stocks, you need to open a Demat account with a broker.
  • Complete the formalities like KYC, bank account verification, etc.
  • Choose the Gold ETF you want to invest in. Since there are a number of Gold ETFs offered by different fund houses, you should compare and choose the best ones before investing.
  • Gold ETFs are traded live on stock exchanges just like stocks. You can place a buy order at the market price or at a limit price.
  • Once the units are bought, the same will start displaying on the dashboard.

Disadvantages

  • You have to go through some paperwork and formalities such as KYC, account verification, etc., in order to invest in gold ETFs.
  • You also need to open a Demat account with a broker that offers investment in gold ETFs.

Top Gold ETFs in India

Gold ETF1-year Return3-year Return5-year Return
Goldman Sachs Gold BEes7.5%-1.7%6.8%
R*Shares (Reliance) Gold ETF7.2%-1.9%6.8%
SBI Gold ETF7.3%-1.7%7%
HDFC Gold ETF7%-1.9%6.7%
UTI Gold ETF7.1%-1.9%6.8%


Gold Mutual Funds

Gold mutual funds are a type of gold fund that offers you to invest indirectly in gold. We already know about direct investment in gold but what are indirect investments in gold? Gold mutual funds do not use funds to purchase the gold commodity, instead, it is invested in the stocks of gold mining and producing companies, gold distributing syndicates, etc. Stock prices of these companies are not entirely dependent on the market price of physical gold.

Advantages

  • Unlike Gold ETFs, Gold mutual funds are actively managed funds. They are managed by experienced and professional fund managers who continuously strive to generate higher returns. 
  • Investing in gold funds can help you to hedge against market volatility and inflation. It is seen that gold funds have offered substantially higher returns than other mutual funds during economic pressures.
  • Even if the commodity gold is not performing as per expectation, you still have the chance to benefit from the gold producing/mining companies stocks’ performance.
  • You can invest in gold mutual funds easily without any hassle. The best part is that you can also start a SIP in any gold mutual fund and invest periodically.
  • No Demat account is required to invest in gold mutual funds.

Disadvantages

  • Although you do not need to have a Demat account, KYC is still mandatory to invest in gold mutual funds.
  • You might also have to pay some charges such as expense ratio, entry/exit load, etc., for your investments in gold mutual funds.
  • An increase in gold prices will not necessarily have a direct effect on your investment.

How to Invest in Gold Through Mutual Funds?

  1. Choose a mutual fund app that offers you to invest in gold mutual funds. 
  2. Make an account and complete the KYC verification process.
  3. Explore the mutual funds section and filter out the gold mutual funds.
  4. Compare the top gold mutual funds based on past performance, holdings, etc.
  5. Enter the amount you wish to invest and submit the request.
  6. Your investment will be displayed on the dashboard once the mutual fund units are allocated.

Top Gold Funds in India

Gold Fund3-year Return5-year ReturnReturn in 2021
Kotak Gold Fund14.4%10.5%26.6%
Axis Gold Fund14.2%10.2%26.9%
SBI Gold Fund13.8%10.2%27.4%
ICICI Prudential Regular Gold Savings Fund13.7%9.7%26.6%
HDFC Gold Fund13.6%10%27.5%

Sovereign Gold Bonds (SGB)

Sovereign Gold Bonds or SGBs are issued by the Reserve Bank of India on behalf of the central government. Investors can purchase gold in this bond on a per unit basis, in which each unit derives its value from 1 gram of gold having a purity of 999. The cost per unit of the gold bond in SGB is calculated by taking the average of the last three sessions’ closing price of gold. The RBI, on behalf of the Government of India, issued SGBs in different trances during a financial year. The subscription for the last tranche of FY 2021-22, which is also the Series VII, was opened on 25 October 2021 and closed on 29 October 2021. It bears a fixed interest rate of 2.5%, which is credited semi-annually. 

Advantages

  • The government offers a fixed rate of interest on SGB investments, irrespective of the fluctuation in gold prices.
  • SGB is available in paper and dematerialized form that eliminates the need for holding physical gold.
  • You can enjoy taxation benefits on SGB. After maturity, you do not have to pay any taxes on capital gains earned. Besides, you are exempted from paying TDS on receivable interest.

Disadvantages

  • The period of maturity in SGBs is 8 years, which is very long when compared to other maturity-based investment instruments.
  • In case the gold price decreases in the period of 8 years, you will suffer capital losses. However, gold prices have generally increased in the long term.

How to Invest in SGBs?

  1. You can easily invest in SGBs online through INDmoney. Although there are offline investment ways as well, the online process is smooth and completely hassle-free.
  2. There are a number of banks approved by the RBI to allow the purchase of SGBs.
  3. You need to have a net banking account through which you can make payment for the purchase of SGBs.
  4. Alternatively, you can also invest in SGBs through different brokers. For this, you should have a Demat account opened with the broker that provides the facility to invest in SGBs.
  5. In all cases, you have to fill in a registration form and enter the subscription quantity.

Buying Digital Gold

The only difference between buying physical gold and digital gold is that in the latter case, you do not need to hold the purchased gold physically. The purchased units of gold will be stored by the seller in secured vaults.

Advantages

  • You can invest as low as Re 1 in digital gold.
  • You can redeem the purchased gold and get it delivered to your doorstep in coins or bars.
  • The purchased gold is stored safely with the seller.
  • The investment can also be used to procure loans.

Disadvantages

  • There is an upper limit of Rs 2 lakhs for investment in most platforms.
  • You might have to pay storage charges as well.
  • There are delivery charges applied to the gold in case you want to redeem the purchased quality and get it delivered in a physical form.

How to Buy Digital Gold?

  1. Currently, there are three sellers of digital gold- Augmont Gold Ltd., MMTC-PAMP India Pvt. Ltd., and Digital Gold India Pvt/ Ltd. There are a number of apps that allow you to buy digital gold from these sellers.
  2. Choose the platform that you want to use for buying digital gold.
  3. Enter the amount you wish to invest or the quantity of gold you want to buy.
  4. Make sure you have completed the KYC verification. Once done, choose the preferred payment method from the available options.
  5. Once the payment is done, the purchased gold will be stored in a secured locker.
  6. You can take physical delivery of the gold as well.

Gold Prices Over Past Decades

YearPrice (24 Karat per 10 grams)
1970Rs 184
1980Rs 1,330
1990Rs 3,200
2000Rs 4,400
2010Rs 18,500
2020Rs 48,651

Why Should You Invest in Gold?

Protection Against Inflation

It is seen that gold prices surge during times of inflation. Whenever there is inflationary pressure in the economy, and your other investments are underperforming, the investment made in gold through any means will compensate for the losses.

A Good Savings Options

Gold is a highly liquid asset and when compared to other liquid savings schemes, gold has offered much higher returns over the years. Hence, you can invest a part of your savings in buying gold or in gold-based investment instruments to enjoy liquidity and earn higher returns simultaneously.

Stability in Price

Unlike stock market securities, gold prices have shown a high level of stability in the past years. Thereby, gold can be considered as a good long term investment option.

Multiple Investment Options

Now you do not have to buy physical gold in order to make a gold investment. You can put money in Gold ETFs, Gold mutual funds, and SGBs and enjoy flexibility in terms of investment.

Can Avail Loans

You can use your gold as a mortgage and avail gold loans. Such loans come with very attractive interest rates. 

Overall, it can be concluded that investing in gold is one of the best ways to diversify your investment portfolio and minimize the overall risk. Gold allows you to cope up with tough economic times when your other investments fail to perform. Thanks to the high liquidity, generous returns in the long run, and multiple investment options, gold is again in the spotlight among investors.

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