Exploring Different Ways to Invest in Gold from Physical to Digital Options

Mr. Prathamesh Mallya, AVP- Research, Non-Agri Commodities and Currencies, Angel One Ltd
Mr. Prathamesh Mallya, AVP- Research, Non-Agri Commodities and Currencies, Angel One Ltd

by Mr. Prathamesh Mallya, DVP Research, Non-Agro Commodities & Currency, Angel One Ltd

Gold has always been an asset which is physically bought by Indians. However, the advent of digitization after COVID-19 has led many investors to choose their investments in digital mode and divest the portfolio.

Let us assess what different ways can an investor invest in gold as an asset class.

1) Physical Gold – One of the easiest ways an investor chooses is to buy physical gold. Investors can buy gold Jewellery or coins/bars from a reputed jeweler.

A) Benefits of buying physical gold.

I. Investors buy physical gold as they consider it as a store of value. They can visit their gold at any time, whether it’s at home, in a storage facility, or in a bank vault and have peace of mind.

II. One really need not worry about earnings reports, changes in dividend and interest payments.

III. Liquidity- Physical gold can be easily liquidated in to cash with relative ease anywhere on the planet

IV. Cant be hacked- You don’t need electricity or the internet, to hold gold coins or jewellry in your hands. It cant be hacked or deleted

V. Ideal asset for heirs – When one invests in physical gold, they can easily pass it on to their children, grandchildren.

VI. Easy way to save money Investing in physical gold can help you save money for the future while also allowing you to earn significant returns in the long run.

B) Cons of buying physical gold is as follows

I. Physical gold at certain point has storage costs if kept in bank lockers

II. Physical gold does not provide any steady income like interest/dividend

III. Purchasing jewellry also costs making charges as well as wastage

2) Digital Mode of Investing in Gold

I. Investing in Gold ETF’s (Exchange Traded Funds)

II. Buying Sovereign Gold Bonds

3) Investing in Gold ETF’s ( Top 5 Gold ETF’s in India)

NIPPON Gold ETF, SBI Gold Fund, Aditya Birla Sun Life Gold ETF, Invesco India Gold ETF, HDFC Gold ETF are the top 5 gold ETF’s in India.

I. How does a Gold ETF work?

· Listed and traded on NSE and BSE

· Traded in cash segment

· Purchase/redeem gold in electronic form

· While redeeming, one doesn’t get physical gold, but the cash equivalent

· ETFs have much lower expenses as compared to physical gold investments.

II. Advantages of Investing in Gold ETF’s

· Purity of the gold is guaranteed

· Each unit is backed by physical gold of high purity

· Transparent and real time gold prices.

· Listed and traded on stock exchange.

· A tax efficient way to hold gold as the income earned from them is treated as long term capital gain.

· No wealth tax, no security transaction tax, no VAT and no sales tax.

· No fear of theft – Safe and secure as units held in Demat. One also saves on safe deposit locker charges.

· ETFs are accepted as collateral for loans.

· No entry and exit load.

III. How to sell/redeem Gold ETF

· It can be sold at the stock exchange

· Demat and a trading account

· One when liquidates, one is paid as per the domestic market price of gold

· AMC also permits redemtion of gold ETF units in physical form if one holds equivalent of 1kg of gold in ETF’s or in multiples thereof

4) Buying Sovereign Gold Bonds

· Sovereign gold Bonds are one of the ways of digital investment in gold. These bonds are issued by Reserve Bank of India on behalf of the Government of India. These bonds are denominated in multiples of grams of gold with a basic unit of 1 gram

· The tenor of the bond will be for the period of 8 years with exit option in 5th, 6th,7th year to be exercised on the interest payment dates. Minimum permissible limit will be 1 gram of gold and maximum permissible limit shall be 4 KG for individual, 4 Kg for HUF and 20 Kg for trusts and similar entities per fiscal year (April-March) notified by the Government from time to time.

· The redemption price will be in Indian Rupees based on simple average of closing price of gold of 999 purity of previous 3 working days published by IBJA.The investors will be compensated at a fixed rate of 2.50 per cent per annum payable semi-annually on the nominal value.Bonds will be tradable on stock exchanges within a fortnight of the issuance on a date as notified by the RBI.

Out of these options, investors can choose to invest depending on their need and risk profile. Our advice to investors is to invest at-least 10% of their portfolio in gold for better diversification.

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