Planning to invest in gold this Dhanteras? From physical gold in the form of jewellery to digital investments via products such a Gold ETFs, or Sovereign Gold Bonds, here’s a guide for you to take an informed decision before investing.
Gold has always been a means of liquid investment, against which one can also borrow money as mean of a loan. However, investing in physical gold comes with its challenges, especially regarding its storage and safety. Jewellers also levy labour charges when making gold jewellery, which you cannot recover when selling it. When buying jewellery, ensure that you weigh its value by weight and purity, as only 24 karat is considered pure gold. Also, note that the resale value of gold bars or coins may be higher than that of physical gold.
Gold ETFs (Exchange-Traded Funds)
Gold exchange-traded funds (ETFs) are a convenient avenue to invest in gold digitally. These are passive investments linked to the price of gold price and traded on stock exchanges. Here, one unit of a Gold ETF is equal to one gram of physical gold. These can be easily liquidated to buy physical gold at the prevailing market rate.
To invest in Gold ETFs, you only need to open a demat account. Gold ETFs offer many benefits such as allowing you to add gold to your portfolio without the challenges of investing in physical gold, and the potential of earning a profit when the price of the metal appreciates. This liquid, cost-effective investment is a popular choice for investors seeking long or short-term exposure to the gold market.
Gold Mutual Funds
Gold mutual funds are another convenient option to invest in gold for portfolio diversification. These are professionally managed funds that function by pooling money from multiple investors to invest in a variety of gold-related assets, such as gold mining stocks, bullion, and mining companies. Like Gold ETFs, they allow investors’ exposure to the gold market without having to invest in physical gold.
Sovereign Gold Bonds
Sovereign Gold Bonds (SGBs) are another popular option to digitally invest in gold. SGBs are government securities issued by the Reserve Bank of India that are denominated in grams of gold and come with an interest of 2.5% p.a. Investors receive periodic interest and the principal amount at maturity, linked to the prevailing price of gold. Absence of storage challenges, capital appreciation linked to gold prices, and interest income are some benefits associated with SGBs. The minimum investment for SGBs in 4 kg for individuals and 20 kg for trusts and similar entities, but these limits may be revised by the government from time to time. However, before investing, you must also be aware that SGBs lack liquidity in the secondary market and have a fixed tenure. Also, the interest they offer is taxable.
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Digital gold
This is another type of gold investment where you can buy gold in small denominations online. It allows investors to own a portion of physical gold that is stored in secure vaults. This investment also allows you exposure to the gold market without having to worry about the challenges that accompany physical gold investments. Many digital payment platforms and investment apps facilitate investments in digital gold.
What’s the ideal strategy to invest?
Gold is an asset that has been trusted for ages for not just growing money but conserving it as well. If you seek risk adjusted returns, investing in gold can help mitigate your risk when the markets are volatile. The yellow metal makes for an ideal choice to diversify your portfolio, and investing in gold digitally may be the best way to go about it. If you prefer investing in physical gold, ensure you have a robust arrangement for storing it safely.
Given that gold has been one of the most-preferred commodities during times of global economic uncertainty, such situations closely influence the demand and price of gold. Considering the challenges associated with investing in physical gold, you may explore investing in Gold mutual funds, SGBs, or Gold ETFs. However, Gold mutual funds are not linked to the physical gold and allow a starting investment as low as Rs.1000 via SIP. But, regardless of whichever form you choose to invest in gold. It is advisable to restrict your exposure to 10% of your portfolio and diversify your investment for the best returns. You may also seek the advice of a professional financial advisor to understand the option that’s best for you and invest in it based on your financial goals.
Adhil Shetty is the CEO of BankBazaar.com
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