5 Tips to consider before investing in Gold this Diwali | Motilal Oswal
5 Tips to consider before investing in Gold this Diwali | Motilal Oswal

How to invest in Gold this Diwali

Gold is the most loved precious metal in the world. It is not only a wonderful ornament but also a great hedge from falling markets and inflation. Another well known attribute of gold is that it can be liquidated with ease anywhere in the world.

For many of us, gold acts as the symbol of purity and opulence. Gold is also gaining popularity as an investment asset as it adds value to one’s portfolio. However, let us also hear a word of caution; though festive season is a good time to invest in gold, do not go overboard on it too. A number of financial experts also suggest that gold should not exceed 5-10% of one’s portfolio.

With increase in Gold Prices for Diwali investors or buyers need to be aware of some smart avenues and tips for buying gold.
Jewellery is a traditional way of buying gold since years. This is the most common way of buying jewellery physically and the other forms are gold coins, statues, utensils and bars. Ornamental gold should not be purchased as an investment as it tends to lose the value in form of making charges when it is being converted to the form of cash or gold. In many cases, the loss can be anywhere between 15-20%.  
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The 5 factors which one needs to consider while buying gold this Diwali are:

 

1.  Purity
Know the purity of gold and the markings inside that indicate the caratage of the gold purchased. Purity is measured in carats and 24 Carat is known to be the purest of all. Purity for ornaments is mostly 18- 22 Carat and one can be assured of this when the jewellery is purchased from branded jewellers.

2.  The Cost
The cost parameter is next to purity and some of the options available for gold investing levy the cost for acquiring; while with others, the investors need to bear the cost for storing. When purchasing jewellery, one has to pay for the making charges and this can be avoided by investing in gold bars or coins. One can also opt for the gold monetization scheme & gold coins schemes that are launched by the government so as to make some revenue from the already existing gold. Interest earned can be reinvested in physical form or electronic form of gold investment. So, people need to choose their investment option wisely.
 

3.  Ease of Sale
Buyers also need to consider the fact that selling ornamental gold is not that easy. So, before you decide to buy jewellery this Diwali, you need to consider the factor of ease of sale. Most of the jewellers deduct about 15 % from the gold’s value when you are selling any jewellery.
Even banks do not buy back the gold coins bought from them. As per the guidelines of RBI that banks can only be the retail sellers of this precious metal but cannot buy it back. So, it is important to check for the policies before you complete your purchase.
 

4.  The Taxes
Investors also need to have a clear understanding of the tax they would be paying when they sell their gold and this has to be clear before making their investment. When physical gold is being sold, one needs to pay the wealth tax of 1% whereas the taxes vary in the electronic forms of investment.

5.  Banks’ or the jewellers’ reputation
Physical gold can be bought in the form of gold coins and these are now available from various banks. During such a purchase the bank issues the certificate of purity for the gold they sell. The coins too are provided in a tamper proof packing and one can be assured about the purity and the weight. But one has to be aware that most banks charge higher than the market rate and in many cases it can be higher than 10.20%.
While purchasing gold jewellery, one has to be smart enough to choose a brand that is well established and has a proven authenticity.
 

Safer options to invest in gold:


While the above mentioned are the 5 factors one needs to consider before buying gold, mentioned below are other alternative and safer options to invest
in the ever loved precious metal.
1.  The Monthly Gold Investment Schemes
Monthly investment schemes are now being offered by a number of jewellers. The investors can pay for the whole year and there are variations for these too. In the first variation, investor accumulates in the form of rupees and this can be redeemed as per the prevailing gold rate.
In the second variation, investors get to accumulate in grams and this is opted by many as one can take good advantage of the price fluctuations and it can be redeemed when the gold prices are high.  One has to check for the terms and conditions as there are some jewellers who make it a compulsion to redeem these in jewellery so that they can earn on the making charges.
 
2.  Gold Exchange-Traded Funds (ETFs)
Gold ETFs is the mutual fund scheme, which invests only in gold. The units of gold are held by the investors in the electronic form. One unit of ETF is equal to one gram of gold and vice versa. The minimum investors can purchase with ETF is 1 unit. These units are traded on the stock exchange and one can buy or sell these similar to the ordinary shares.
 

3.  E- Gold
E- Gold that was launched by NSEL is also another electronic method to invest in this precious metal. The basic difference between E gold and ETFs is that in E gold, the investor is the direct owner whereas in ETFs the asset management company holds the gold on the investor’s behalf. So, many investors now prefer this method of investing in gold as they hold its ownership.
 
4.  Gold Funds & Equity Based Gold Funds 
Gold fund is the fund of fund scheme that has been launched as a part of mutual funds where the investments are made on gold ETFs. Investors do not need to have a demat account to invest in gold funds as they can make their investments through SIPs. However, one has to remember that these are slightly expensive as compared to the gold ETFs.
Investors can also consider the equity based gold funds that are the mutual fund schemes where investments are made on stocks that are issued by the companies involved in extraction, mining, marketing and processing of gold. There are very few such listed companies in India that are associated with the equity based gold funds. But these also involve risks and hence those who are looking for low risk options, should opt for choices like E gold.
 

5.  Gold Futures
This is another form of investing in the yellow metal. To deal with gold futures, you need to have thorough knowledge of the international commodity markets and also need to understand how it all works.
Now that you know about various ways to invest in gold this Diwali, it is time for you to take your pick.

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