Introduction
In India, gold has been cherished for generations as a precious ornament and a safe-haven asset. Gold serves an important role not only from a cultural standpoint but also from various perspectives, including portfolio diversification, hedging against inflation, and security during tough times. This guide will assess various investment options in gold available for both the old and new you based on your investment objectives and risk profile.
Why You Must Invest in Gold?
Gold is an additional hedge against inflation and currency fluctuation, making it an asset to include in various investment strategies. With awareness of the gold investment options available, you can tailor your options based on personal risk, liquidity, and longer-term goals.
Physical Gold: The Classic Choice
What Is Physical Gold?
Physical gold includes jewellery, coins, and bars from trusted jewellers, banks, or dealers. It is a physical asset that can be held, worn, or gifted for special occasions like Diwali and weddings.
Advantages of Physical Gold
Cultural and Financial Value: This is a great item to gift or use personally, with good resale potential.
Hedge Against Inflation: Gold tends to hold its value and sometimes gains value while all other investments lose value.
Direct Ownership: Gold offers you the benefit of ownership and control, unlike a stock or bond investment.
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Things to Consider
- Storage Expenses: There are secondary fees, such as off-site storage or purchasing a safe at home.
- Making Costs: Besides the costs of making it, gold jewellery includes extra costs that reduce its gross and net returns.
- Liquidity: Selling jewellery may involve purity, losing the making costs, and taking time to realise cash.
If you are committed to family tradition and value preserving family wealth long-term, physical gold could be your best gold investment.
Gold ETFs: Flexible, Market-Oriented
What are Gold ETFs?
A Gold ETF, or Gold Exchange-Traded Fund, is a fund that replicates the local gold price. It is traded on a stock exchange (for example, the NSE) through a demat account. Gold ETFs allow for investment in gold without physically owning gold.
Advantages of Gold ETFs
Liquid: You can buy or sell shares whenever the market is open.
No Storage Fees: You will not have to worry about buying safes, insurance, etc. to store your gold, resulting in a savings of more money compared to actual gold ownership.
Transparent: The price of the gold ETF is based on the price of gold at the time, and the prices you receive from ETF funds will always be the fair cost.
Things to Consider
- Management Charge: It charges management fees. Although the expense ratios are low, these fees will slightly lower your overall return on investment.
- Returns: Gold ETFs only derive their returns from the price of gold, and there is no other income component.
If you are willing to trade for convenience and invest as needed when the price of gold calls for it, then gold ETFs will be a very effective component of your gold investment program.
Sovereign Gold Bonds: Safe and Profitable
What are Sovereign Gold Bonds?
Sovereign gold bonds (SGBs) are securities linked to gold prices because they are issued by the Reserve Bank of India and backed by the Government of India. When you purchase sovereign gold bonds, you buy grams of gold for 8 years and can exit after 5 years.
Advantages of Sovereign Gold Bonds
Double Returns: Receive returns based on the appreciation in gold prices and a fixed interest rate of 2.5% per annum, paid every six months.
Tax Advantage: Any capital gains that are achieved on the maturity value of the sovereign gold bonds will be exempt from taxes, provided you hold to maturity.
Safeguard: They are arguably acceptable low-risk assets, as the RBI backs them.
Things to Consider
- Lock-in Period: The liquidity of the sovereign gold bonds is reduced to a minimum holding period of 5 years.
- No Physical Delivery: At maturity, you will receive cash and not actual gold.
If you are looking for a safe option and an income-generating investment scheme, the sovereign gold bonds are likely the best gold investment option for long-term investors.
Digital Gold - A New and Available Investment Option
What is Digital Gold?
Digital gold allows you to buy gold online through third parties and trusted and reliable companies for as little as one rupee. Any digital gold you buy will be stored in safe and secure vaults, which are insured, so you do not need to be concerned with actual gold storage.
Advantages of Digital Gold
Minimum Investment: This is a very low entry point; you can invest as much as you can afford. This affordable price point makes it a perfect entryway for new investors looking for an avenue to enter the gold investment marketplace.
Storage: In investing via "digital gold", there are no storage concerns of the physical gold tied to the digital gold.
Liquidity: Digital gold can be converted, traded, or purchased in return for physical gold at any time, 24 hours a day, 7 days a week.
Things To Consider
- Hardware Fees: There might be fees or service charges that are transaction or storage-related, depending on the platform.
- Counterparty Risk: Counterparty Risk should be significantly mitigated using a reputable platform.
For those who are tech-savvy or developing small accounts, eventually, it may be the best way to start making an incremental wealth-building investment in gold.
Conclusion
The different forms of gold investing offer affordable, flexible, and secure solutions for financial security, whether you choose to invest in physical gold, a gold ETF, sovereign gold bonds, or digital gold. Each investment provides an opportunity for security. Work with an advisor to develop a gold investment scheme that fits your overall portfolio and objectives and helps ensure your investments will shine over the long term.
Similar Reads: A comparison between Sovereign Gold Bond and Physical Gold | 10 things you must know about buying Gold ETFs | Best way to invest in Sovereign Gold Bonds