Paper Gold - The Smart Dhanteras!
Gold has long been treated as an important tool to handle financial emergencies in most households. So, purchasing this precious metal is considered more a meaningful investment than an expense.
Although buying this precious metal in its physical form has been a traditional practice, individuals now have the option to invest in paper gold. The following sections include some of the ways through which one can buy paper gold in India.
What is Paper Gold
Paper gold can be understood as financial instruments such as ETFs, gold futures, derivatives, etc., that provide exposure to gold prices without possessing physical gold.
How to Invest in Paper Gold
While physical gold is still quite popular in the country, paper gold is increasingly gaining relevance. There are various benefits of investing in it as compared to physical gold, which has led to the recent popularity of paper gold.
Now, you might wonder how to buy paper gold in India. So, here are some of the best ways to purchase paper gold:
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Gold Exchange-traded Funds (ETFs)
One of the ways to own paper gold is through gold ETFs. These investments take place on the BSE and NSE, with gold as the asset. Investing in such ETFs is highly cost-effective as compared to physical gold, which requires high buying as well as selling charges. In addition, individuals can enjoy transparency in pricing if they opt for these ETFs.
One can purchase gold ETF units via a lump sum investment. Alternatively, they can invest in regular intervals via a SIP. Individuals can buy even 1 gram of gold through these ETFs. Although there are no entry and exit charges, investors have to pay an expense ratio (roughly around 1%) and a broker charge.
Brokerage charges will be incurred every time an individual buys or sells a unit of gold ETFs.
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Sovereign Gold Bonds
Individuals planning to purchase paper gold can also opt for Sovereign Gold Bonds (SGB). The government issues these bonds, but they are not available ‘on-tap-basis’ rather, it opens a window at a particular interval for the fresh issuance of Sovereign Gold Bonds to investors. This takes place usually once every 2-3 months.
However, investors who wish to buy SGBs in between these windows have to buy previous issues, which they can find listed in the secondary market.
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Gold Mutual Funds
Gold mutual funds invest in either gold ETFs or in any foreign gold fund. With these mutual funds, investors can opt for a SIP through which they can invest in gold on a regular basis and thus avail of the advantages of RCA (Rupee Cost Averaging).
Investors do not need a Demat account to invest in these funds.
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Digital Gold
Individuals can now buy coins, bars or jewellery online. Buying digital gold is similar to buying physical gold, provided the entire process takes place online. In other words, this is 24-karat, vault-stored gold that a buyer can access anytime through digital platforms.
The seller will store the gold bought by an individual online in vaults. One can either buy or sell it through digital platforms.
With the introduction of digital gold, this precious metal has now become accessible, approachable and more functional.
Final Word
Although investing in paper gold investment comes with certain benefits, one should think carefully before making a choice. SGB is a suitable option for long-term investors as they attain maturity in the eighth year. Gold ETFs provide better liquidity than SGBs.
Moreover, one should consider the taxation on gains from such investment options before arriving at a final decision. There is a significant difference in terms of taxation. Income made through gains in SGBs comes with tax exemption in case of redemption. However, in the case of Gold ETFs, long-term capital gains are taxed at a rate of 20% post-indexation.