Gold Investment

Different ways of investing in Gold – Gold ETFs, Digital Gold, Sovereign gold bonds

3 Mins read

There are many ways in which you could invest in gold in India. The choice depends on the investment goal and resources available to the investor. We have listed down all the different ways of investing in gold available in india, with details, so you can make an informed choice

Since ancient times, Gold has been marked as a symbol of wealth. Following our ancestral history, it is considered of most importance when it comes to measuring someone’s financial status in society, even today.

In today’s practical and business-oriented world, it marks its relevance as an investment mode. It has been known that approximately 190,000 tonnes of Gold is available in the world at present, out of which 50% is used as jewellery designs. 13 to 17% kept with the banks as gold reserves, and 20% is preserved as gold investments in the world.

There are various gold-related investment products, all of which have different risk and return profiles, liquidity characteristics and fees. Typically, an asset allocation strategy will consider long-term versus medium-term returns, and how gold investment products perform in positive or negative correlation with other assets.

Gold coins and bars

Bars and coins come in many denominations ranging from 0.5g to 100g. Gold coins are popular as they are used in gifting and easy in storage compared to gold jewellery. You can buy them at your local jeweller or at online store.

gold coins and gold bars as one of the gold investment options

Small bars and coins accounted for approximately two-thirds of annual investment gold demand and around one quarter of global gold demand over the past decade.

World Gold Council

When buying bars keep in mind, Investment-quality gold bars should be at least 99.5% (995) pure gold. Bars can be purchased in 1, 10, 20, 50, 100, and 1,000 gram denominations

Limitations: You will have to pay extra making or minting charges. The storage cost after purchase is also high and risky.

Gold ETFs

This process is similar to buying physical gold. The gold is kept in Demat (paper) format.
You can actually buy and sell gold ETFs on the normal stock exchange using your existing trading account. Like in case of shares, these Gold ETFs will get credited or debited to your demat account and has no lock-in requirements.

gold exchange traded funds written on notepad

Physically-backed gold exchange traded funds (ETFs), exchange traded commodities (ETCs) and similar funds account for approximately one-third of investment gold demand.

World Gold Council

Limitations: Gold ETFs track the NAV and not the direct gold price, thus there is 1-3% tracking error. Physical delivery of the the accumulated gold is difficult. You will also need a broker and its fees.

Buying Digital Gold

goldlane app homescreen as digital gold investment option with gold coins

An upcoming popular way of accessing the gold market is Digital Gold. Digital Gold allows investors to buy physical gold online, have it stored in professional vaults and get it delivered if the need arises. It offers investors a highly convenient way to benefit from the ownership of physical gold.

Limitations: You will need to pay 2% spread cost.

Read more about Digital Gold here.

Buying futures and options

Stock market candle stick graph shown on computer screen as futures options as gold investment type

Multi-commodity exchange (MCX) is the largest commodity exchange in India. Gold is the most traded commodity on this market, with different bullion options to choose from. Trading in gold at MCX requires extensive knowledge of gold trading. You need to find a broker and register on MCX. Minimum investment amount for gold is ₹5,000. One cannot trade until money is transferred to the broker. Once this is done, an individual can log on to his/her account and participate in trade.

Limitations: Buying futures is risky and should only be attempted by experienced investors. Also you will need large sum of money to trade at MCX

Sovereign Gold Bonds

SGBs are government securities denominated in grams of gold. They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity. You get 2.5% interest and they have a lock in period of 8 years.

Limitations: The lock-in period is very high and considering that gold is used by many as a emergency fund, locking in the gold will not serve the purpose. You won’t be able to use your gold during crisis situation. Also no physical delivery of gold is possible at the end of the bond period.

Conclusion

According to experts assigning around 30% of your portfolio to gold is a good idea. Because of its negative correlation to equity, gold balances the highs and lows of the market. Which form of gold to select depends upon the investors goals and preferences. Read the benefits and limitations for each form and make an informed decision. Because gold is here to stay as a good investment!

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