Gold, the yellow metal, has a special place in the hearts of investors and Indian households. Traditionally people have used gold as a way to pass on and preserve wealth from one generation to another. Today along with the emotional value of being seen as a heritage to be passed on, the yellow metal has gained prominence as an investment avenue. Gold is considered to be a safe haven and adds diversification to the portfolio.
Investment in gold can be in physical forms such as jewellery gold coins, as sovereign bonds, through mutual fund routes such as gold ETFs and gold fund of fund (FoF) and in the digital form. Let’s look at each of these in detail.
- Jewellery & Gold Coins
Indians’ love for gold is long standing. It is a very common phenomenon for most Indian families to have gold in the form of jewellery and coins. Gold jewellery is not only used as an ornament, but also set aside to tide over financial emergencies. Its inherent potential for long-term appreciation makes it more attractive. Nevertheless, you need to be mindful of the fact that the making charges on gold jewellery and coins are irrecoverable and hence those charges should not be considered as an investment.
- Gold Exchange Traded Fund (ETF)
Gold ETF is a fund that consists of only one principal asset i.e. gold. It is similar to buying physical gold, the only difference is one doesn’t actually hold the physical gold. It is held in the form of units like any other mutual fund. You need a demat account with a broker to purchase (or sell) a gold fund. Further, it also eliminates the need for the locker facility which saves on cost involved in holding physical gold. The advantage is that you could get all the benefits of owning gold such as the increase in the value of the gold, the liquidity without holding the actual gold.
- Gold Funds
Gold Fund is an open-ended fund of fund (FoF) which invests in a gold ETF. This is similar to investing directly in an ETF, except that it does away with the hassle of a opening a demat account as an FoF works like a mutual fund. Moreover, one can invest in these funds by way of the systematic investment plans (SIP) which is not possible with the ETF. However, gold funds charge an exit load unlike a gold ETF which does not charge an exit load.
- Sovereign Gold Bonds
Sovereign gold bonds are government securities which are denominated in grams of gold issued by the RBI on behalf of the Government of India. It is a substitute for holding physical gold.
- Digital Gold
Imagine buying gold for as low as Rs 100 from the safety of our homes without worrying about its purity, safety, making charges, storage, etc. These are some of the key features of investing in gold digitally. This service is offered through digital platforms of banks, broking and fintech companies. The physical gold you buy through this digital platform is held in the custody of the issuer till the time you choose to redeem it in cash or have the gold delivered.
India annually imports 800-900 tonnes of gold and it is easy to see why. Our consumption of gold for security is only rivalled by our penchant for real estate as investment. Both of which continue to see unperturbed demand in any market condition.
However, even while investing in traditional instruments like gold, remember to look beyond the traditional forms. This would not only have a significant impact on the cost of investing but can also help be fine-tuned to suit the purpose and nature of your financial goal. Besides portfolio diversification, investment in gold is a hedge against inflation.
So add the glitter of diversification coupled with potential for long term appreciation, by investing in gold. You can choose hassle free investment without having to bother about storage by investing through Gold ETFs or Gold Fund of Funds.
