Gold investment has long been a safe haven for investors during such testing times because of the opposite trajectory it follows to equities. However, for Indians, gold carries a much bigger value than just an investment opportunity; and when emotion comes into play, it becomes important to pay more heed to the commodity, the risks and benefits it carries.
It becomes even more essential in the case of gold because gold can be treated in two ways: as an investment or for personal usage. The problem comes when Indians mix the two!
Gold can now be bought and invested in various forms: physical gold, digital gold, gold bonds, gold ETFs (exchange-traded funds) and more. Investing in gold online is a different ballgame. Let’s take a look at the various forms in which you can own gold, what suits you best as an investor and as a buyer. Read On!
Digital gold can be bought on various digital platforms of different fintech startups.
Digital gold investment can go as low as Re 1 as well. Such platforms generally have an association with gold traders or manufacturers like Augmont. You can make transactions in gold at live market prices and redeem it whenever you want to.
You can either choose to get your investment’s value or get physical delivery of gold. However, check with the platform you use to invest in digital gold. Not all platforms may allow you to take physical gold on delivery. Your investment in digital gold is backed by physical gold. Digital gold can be used for investment purposes.
You can buy gold jewellery from jewellers but considering gold jewellery as an investment option may turn out to be an expensive affair for you.
One of the main reasons for this is that gold jewellery carries making charges. If you consider it as an investment, while selling it back you will not get your making charges back. Your returns might get compromised depending on how the metal is performing.
The making charges can range between 5-23% depending on the type of jewellery. The only advantage of jewellery is that you get physical possession. There is a touch and feel aspect to it.
Coins and Bars
Coins and bars may not carry much ‘usage’ value. These do carry making charges as well but are way lesser than jewellery. They are less than Rs 1,000 in most cases. Both coins/bars and jewellery carry a risk of theft and physical damage.
Sovereign gold bonds were started as an initiative by the Government of India in 2015. The sale of such bonds is supervised by the Reserve Bank of India. It was started by the government as an alternative to owning physical gold.
This is an efficient way of owning gold as an investment opportunity. These bonds have a term of eight years with a lock-in period of five years.
Bonds are backed by gold and can be redeemed in cash only. Investors are not charged any management fees on this fund.
Gold ETFs are basically exchange-traded funds that invest in gold. They are traded on the stock market. ETFs carry Demat account charges which can range from nil to up to Rs 3,000 as well depending on the broker.
All mutual funds carry expense ratios and the expense ratio for ETFs are generally in the range of 0.5 to 1%. A gold ETF does not let you own gold but gives you exposure to the performance of the commodity.
Gold Fund of Funds (FOFs)
Fund of funds are mutual funds that invest in other mutual funds. They carry a higher risk level and are more expensive. Gold mutual funds invest in gold ETFs and they carry the expense of gold ETFs it is investing in and its own charges as well.
Gold Savings Schemes
Gold savings schemes are schemes that are run by jewellers. In such schemes, you have to deposit money with a particular jeweller of your choice in a periodic fashion (mostly monthly).
After the scheme matures, you can buy gold from the same jeweller for the amount you invested with them. The jeweller may add some bonus to the amount at the end and give you your jewellery on that added amount.
Many people pick such schemes when they think of how to invest in gold but this method carries a couple of risks.
One would be that we have seen many cases in the past where the jeweller collected money from its customers and at the end of the period they shut shop.
You need to be cautious and do a thorough background check of the jeweller. Making charges will be applicable here as well. Depending on the type of jewellery you want at the end, the charges will vary between 6-35%.
If the charges are too high, it might cover up the bonus amount added by the jeweller and your overall returns may diminish.
Here’s a ready reckoner of how to invest in gold for beginners
|1.||Digital Gold||Online only||Depending on the digital platform you pick. Delivery cost (making charges) may be there if you choose to get physical gold|
|2.||Jewellery||Offline. Rarely online depending on the jeweller.||Making charges mostly range from 6 to 25%. It may vary depending on the city and jeweller.|
|3.||Coins and bars||Offline. Rarely online depending on the jeweller.||Making charges up to Rs 1,000. It may vary depending on the city and jeweller.|
|4.||Sovereign Gold Bonds||Offline and online||Nil|
|5.||Gold ETFs||Offline and online||Expense ratio is mostly in the range of 0.5 to 1%|
|6.||Gold fund of funds||Offline and online||Expense ratio mostly does not cross 1%|
|6.||Gold savings schemes||Offline and online||Making charges for the jewellery you take on the maturity of the scheme|
If you have followed us till here, you would have an idea that there are more ways than one for you to access gold. You may be able to make the decision if you just want to invest in gold and get exposure to the performance of the metal or the ‘touch and feel’ aspect is essential for you.
If you are still confused, we will help you to make that decision and go over the factors you need to consider when you think of how to invest in gold online.
Do you want to own the gold in the end? This is the first question you need to answer. Gold ETFs, Digital gold and sovereign gold bonds are the perfect answers to how to invest in gold online for beginners but all of them offer different purposes.
If you are looking for a relatively risk free investment, sovereign gold bonds are a better option because they offer a fixed rate of interest at 2.5%. Digital gold is linked to the live commodity price. Your returns may go higher/lower than the interest offered on SGBs depending on how the commodity market is doing.
When it comes to online modes, digital gold allows you to either own physical gold in the end (depending on the platform you pick) or get the monetary value in the end. In case you have decided you do not want to own the gold, you can just choose to get your redemption value when the redemption/maturity is nearby.
Gold bonds, ETFs and Gold funds only give you the exposure to the commodity’s market performance. If you are picking these options, you need to be doubly sure that you do not want physical delivery of gold on maturity/redemption.
Cost-wise all forms of gold vary. Sovereign Gold Bonds floated by our government does not carry any charges. The charges for gold ETFs and gold fund of funds charges have been set by Securities and Exchange Board of India (Sebi).
Expense ratio for these funds mostly do not cross 1%.
Costs for transacting digital gold depends on the platform you pick.
The purpose, nature and costs for investing in gold vary across forms. What may suit your peers and friends may not align with your objectives. Especially when there is so much variety in terms of accessing gold, running a thorough check on yourself, what you need and what you can afford becomes all the more important.
Review your objectives before making that purchase.
Happy Akshaya Tritiya and Happy Investing!