How to invest in gold

For several centuries, gold has been seen as a household investment, and as a way of building financial security. The financial market has evolved over time, and Indians today see gold as not only a physical asset, but also an investment that helps diversify their portfolios. You as an investor may look for low transaction costs and flexibility, greater returns, and without missing liquidity for a gold investment plan. In this article, we will discuss how to invest in gold, find out which are some of the top-most gold funds in the country, what documents you require to make an investment in gold, and more. Being aware of these factors would help you decide whether or not you invest in gold, based on your financial goals.

How to invest in gold: Gold investment plans?

Here comes the most important question - how to invest in gold? Well, to begin with, you have to understand that there are conventional methods of investing in gold, and then there are modern investment methods as well.

When it comes to the conventional methods of gold as an investment, it involves you simply buying the physical gold in the form of coins, jewellery, or artefacts. However, things have changed now, wherein you as an investor have the option to invest in gold funds and gold ETFs.

Gold ETFs or exchange-traded funds are similar to purchasing physical gold. The only difference here is that you do not actually purchase the physical gold. You do not need to face the hassles of storing the physical gold. Instead, the gold is purchased and stored in a demat (or paper) format. Gold funds, on the other hand, deal with investing in gold mining companies.

Ways to invest in gold

There are several ways in which you can choose to invest in gold; and each of these methods have its own set of benefits and considerations. Whether you are looking for paper-based investments, or want to own physical gold, it is important for you to be aware of all the ways in which you can make an investment so that you can choose a method that is best suited given your financial plans. Here are some of the most popular methods of investing in gold:

1. Gold jewellery

Gold jewellery is a traditional and widely favoured way to invest in gold, particularly in India. You can easily purchase gold jewellery from almost any jeweller, but it's important to keep in mind that making charges, which typically range from 5% to 20% of the gold's value, are non-recoverable when you sell. Additionally, you will need to consider the costs associated with secure storage, such as locker rentals and insurance. Always ensure that your jewellery is hallmarked to verify its purity. While the resale value may not cover the full cost of your initial investment, gold jewellery can still be a valuable asset, offering the option to secure loans against it from banks and NBFCs.

2. Gold coins and bars

If you are looking to invest in physical gold without the additional costs associated with jewellery, gold coins and bars could be a better option for you. Available in 22 carat and 24 carat gold, coins typically come in denominations from 1 gram to 50 grams, while bars are available in larger denominations, such as 100 grams and 1 kilogram. When buying coins, you might pay making charges between 2% and 10%, but bars usually have much lower manufacturing costs. Like jewellery, coins and bars need secure storage, and they are subject to the same 3% GST on purchase. However, they are generally easier to sell and come with lower markups, making them a more straightforward investment.

3. Sovereign Gold Bonds (SGBs)

Sovereign gold bonds or SGBs are one of the safest ways of buying digital gold. These are issued by the Reserve Bank of India on the behalf of the Government of India, and come with an assured interest rate of 2.50% per annum. Sovereign gold bonds are measured in grams of gold, with gold as an investment starting at just 1 gram. You can invest up to 4 kilograms in these bonds. They have a tenure of eight years, but you have the flexibility to exit after five years if needed. This option provides a hassle-free way to invest in gold, allowing you to own gold without the need for physical storage or handling.

4. Gold Exchange-Traded Funds (ETFs)

Gold Exchange-Traded Funds (ETFs) are an excellent option if you want to invest in gold without holding the physical metal. These ETFs are mutual fund units backed by gold, and they trade on stock exchanges just like shares. Gold ETFs offer you liquidity, ease of buying and selling in small denominations, and no worries about storage. Unlike physical gold, you would not have to deal with making charges or purity issues, though there are management fees to consider. Additionally, any gains from Gold ETFs are subject to capital gains tax, similar to other equity-related financial instruments.

5. Gold futures

Gold futures give you the opportunity to invest in gold by entering into contracts traded on exchanges. With these contracts, you agree to buy a specific amount of gold at a predetermined price on a future date, allowing you to speculate on gold prices without physically holding the metal. While this approach can be profitable, it carries higher risks due to market fluctuations.

Some of the gold funds in India

Here are some of the gold funds in India that you may consider investing in, based on the current market scenario:

• Aditya Birla Sun Life Gold Fund

• Axis Gold Fund

• HDFC Gold Fund

• Canara Robeco Gold Savings Funds

• ICICI Pru Regular Gold Savings Fund

What documents do you need to invest in gold?

When it comes to “gold as an investment” of over Rs. 2 lakhs in case of physical gold requires you to present your PAN card. However, when it comes to ETFs, you will be required to open an account with a brokerage firm, and then a demat account with the same firm. If you want to invest in Sovereign Gold Bonds, the documents required are KYC - the same as in case of purchasing physical gold, which includes your Aadhaar Card, PAN card, Voter ID, and/or Passport.

Why should you prefer investing in gold?

As a conventional investor, your primary concerns likely revolve around safety, liquidity, and profitable returns. Investing in gold can help you meet all these criteria. While some may view gold as an investment volatile, it often serves as a safe haven during times of uncertainty. Consider the following points that highlight why gold as an investment can be a wise choice:

Firstly, regardless of inflation rates, gold has consistently delivered returns that keep pace with inflation, making gold as an investment effective in inflation-beating.

Another significant advantage of investing in gold is its liquidity; gold provides excellent liquidity, allowing you to easily convert your investment into cash when needed.

Conclusion

Every investment comes with its own set of benefits and drawbacks. If you are not keen on holding physical gold, you have other options such as ETFs, gold funds, or Sovereign Gold Bonds (SGBs). While gold may not be a passive investment like stocks and bonds that provide regular income through interest and dividends, it does offer excellent liquidity and has the potential to beat inflation. In most cases, the advantages of investing in gold outweigh the disadvantages. If you do not need immediate access to your funds, Sovereign Gold Bonds can be a solid choice. On the other hand, if liquidity is your priority, gold ETFs and funds might be more suitable.

If you are looking to diversify further by investing in mutual funds, Bajaj Finserv Mutual Fund Platform is a comprehensive platform where you can explore over 1,000 mutual fund schemes. Additionally, you can utilise the mutual fund calculator to plan and optimise your investments, compare mutual funds, and make informed decisions based on your financial goals.

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