Gold as an investment has traditionally been a go-to option, considering the reverse trend it follows compared to the equity market. The demand (and the price in turn) for gold usually increases when the stock market crashes or falls. However, gold, especially for Indians, is much more than just an investment option. The issue usually arises when Indians mix the two objectives of buying gold: for personal use and as an investment.
With the evolution of technology, many new-age Fintechs are now providing innovative options to invest in gold. Hence, gold can now be bought and sold or invested in multiple forms (physical gold, gold bonds, digital gold, etc.). This article takes you through various investment options you can explore for investing in gold.
If you are an Indian, choosing jewellery as an investment option might run in your DNA. Nevertheless, jewellery is one of the most popular and expensive investment strategies that people can choose. Although many consider gold as a great investment, they usually ignore the impact of making charges. The making charges contribute significantly to the purchase price and sunk cost during the sale of that item. Moreover, there is more of a subjective or emotional element to jewellery as an investment instead of an objective approach.
Individuals can also invest in solid gold by purchasing biscuits, bars, or coins. The making charges here are very low, and you get good returns while selling. However, one common risk factor in possession of physical gold is storage and theft.
Gold Schemes (Saving Instruments)
There are a ton of gold schemes in the market, which are mainly floated by the jewellers. These schemes work like a SIP where you deposit a certain sum of money every month at a jeweller. The scheme can be for 11 months, 2 years, etc. Once the scheme expires or matures, you can purchase the gold for the invested amount. However, we recommend exercising caution with this form of investment. Make sure you analyze the jeweller and their policy before you invest. Moreover, if the returns from the scheme are similar to an FD or other traditional investments, the risk might not be worth it.
Many Fintech platforms now offer the option to buy digital gold. You can start purchasing digital gold with as little as 1 Rupee to start with. You can start making digital transactions on gold at market prices and redeem it when you sell. Usually, the investment in digital gold is backed by actual physical gold, as these platforms tie-up with traders or gold manufacturers.
In these transactions, you can either redeem your investment return value or avail of physical delivery of gold for that value. It is important to note here that not all platforms provide an option to choose physical gold. This is one of the popular gold investment options out there in the market now.
The Government of India introduced sovereign gold bonds in 2015, which are supervised and monitored by the Reserve Bank of India. This initiative was launched with the objective of providing an alternative investment option to owning gold.
These bonds usually come with a lock-in period of 5 years and with a term of 8 years. There are no management fees charged for this fund, and though backed by gold, they can be redeemed only in cash.
These are exchange-traded funds that invest in gold. All ETFs are traded on the stock market, and so are these. All you have to do is open a Demat account (usually, these have brokerage charges). With this investment option, you don’t buy or own physical gold, but you get exposure to the performance of gold in the market.
Fund of funds are basically funds that invest in a basket of mutual funds. This investment instrument is slightly riskier and is more expensive. This fund invests in gold ETFs. They pass on the expense ratio of the individual funds along with its own charges, making it a slightly expensive option despite the diversification it provides.
Q: Do Sovereign Gold Bonds (SGBs) carry any tax benefit?
A: Yes. If SGBs are held till maturity, there is no capital gains tax applicable on SGBs. However, interest income @ 2.5% p.a. would still be applicable.
Q: What is the Gold Monetization Scheme?
A: The Government of India launched the Gold Monetization Scheme in which physical gold lying idle in households can be given to the Government, which is then used for productive purposes. It provides interest @ 2.5% p.a. Such interest income and capital gains are both exempt from tax.
Q: How do the benefits of digital gold and new-age instruments outweigh conventional physical gold investment?
A: Investments in digital gold eliminate two major disadvantages of physical gold viz., fear of theft and robbery and bank locker charges.