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The rich cultural history of India has seen gold as a part of common lives in the form of coins, jewellery and other items. It was also an integral part of the royal households as the precious metal has played an important role since many decades. This proves how deeply invested Indians are with the yellow metal.
Gold in India is an investment option of substantial importance because of the age old wisdom of collecting this precious metal being passed down through generations. It is one among the only investment options highly used by the womenfolk in India, irrespective of the financial background. Therefore, the demand for gold products, mostly jewellery, in this nation is one of the highest in the world.
Furthermore, gold investments in India are considered a safe option. The precious metal holds emotional, sentimental, and religious value as well. Despite the diverse cultural background and religious faiths, gold is used considerably in all traditional celebrations, devotional festivals, and in wedding ceremonies. Needless to say, it is collected dearly and passed down to newer generations as a token of love.
Investments are an act of putting in money for further monetary gains and are chosen after carefully evaluating on the basis of different factors from the different investment options available in the market. The factors that one must look at before investing is the safety, the liquidity, and the returns from the investment instrument under the investment is being done.
Investments are classified into three basic categories. They are- ownership, lending, and cash equivalents.
This is a commonly asked question about gold and has an answer with multiple choices that one can choose from. Initially, tangible gold items had to be purchased to be in possession of it as an asset. But with increasing technological comforts, it can now also be purchased as ETFs, sovereign gold bonds, gold mutual funds etc.
Mentioned below are the various gold investment options and their details:
Here is a brief analogy on paper gold investments-
Let us first look at the meaning of ETF-Exchange Traded Funds. ETFs behave like individual stocks (but with high liquidity) and are traded in a similar fashion. Gold ETFs are an example for commodity assets with gold as the only chief asset. Investing in gold ETFs is not investing in actual, physical gold, but in the cash equivalents of the same. These investments are based on gold prices and help invest in gold bullions.
Gold ETFs holdings are transparent because they are based on direct gold pricing. Moreover, due to lesser additional charges, they are the closest to actual pricing of gold. These investments are done through stock exchange, either through National Stock Exchange or Bombay Stock Exchange with gold as the underlying asset.
To invest in Gold ETFs, a trading account and a demat account has to be opened with a stock broker. You can choose to invest and buy in lump sum or not. The additional cost comprises of the expense ratio and broker cost. Expense ratio is charged to manage the funds (of around 1%), whereas broker cost is for the intermediaries- stock brokers.
Gold backed ETFs are different from Gold ETFs on the basis of enjoying the benefits of owning physical gold (as the name suggests ETFs that are backed by physical gold). They facilitate access to ownership of physical gold along with its properties and security, without having to arrange for insurance and storage individually. They help track the price of gold and provide the flexibility of owning physical gold at the convenience of stock market trading.
The way to invest in it is similar to that of Gold ETFs. Through a stock broker, investors can purchase Gold-backed ETFs like stocks through stock exchange. They can have these ETFs in possession in their custody account and sell them whenever they wish.
E-gold abbreviated for Electronic-gold, is an electronic way of buying gold. They are considered better than gold ETFs. They are cost effective as they have no recurring management cost. E-gold came into the picture long after ETFs had taken over the gold market.
However, in the recent times, E-gold has risen to the more preferred option.
E-gold can be obtained from National Spot Exchange Limited (NSEL) as they are in electronically demat form. NSEL provides investors the platform to purchase E-gold and convert them to physical gold, if necessary, or directly sell them for a profit.
Mutual funds are bought by pooling in money from many investors. This pooled money is used to purchase units or shares of the funds. A gold mutual fund is an investment in gold-bullion or gold producing companies. This is a convenient way to get returns from investments made on gold and at the same time, to avoid getting the capital affected from inflations or geo-political insecurities.
Under physical gold investments, investments on gold coins and bullions are notable. They are a better physical gold investment option than jewellery due to multiple factors.
Gold coins and small gold bar account for among the highest ratio of gold demand in India as this form of physical gold can be easily resold. The prices vary between different parts of the world and the investment on physical gold comes with challenging responsibilities of safeguarding it.
Gold online is known as digital gold, to buy digital gold one can access mobile wallets such as Paytm, PhonePe etc., and under the Gold Rush Plan of Stock Holding Corporation of India. These facilities are made available in alliance with MMTC-PAMP, or SafeGold, or both. MMTC is owned by the government in a joint venture with PAMP, a company based in Switzerland. SafeGold has tie-ups with various digital wallet apps. This digital platform assists easy buying and selling, and receiving vaulted gold.
More about MMTC-PAMP:
More about Safegold:
Make sure to compare various features, charges etc. before deciding.
Allocated gold is gold owned by an investor under a safeguarding custody arrangement with a professional gold bullion vault. This is when an investor buys an amount of gold and allocates gold accounts for safekeeping. Unlike unallocated gold, allocated gold is not a property of the bank. Allocated account storage price is inexpensive because of the compact size of gold bullions. But it is advisable to look for institutions that provide commercial gold bullion storage unit which ensures cheaper allocation cost. This is because such institutions are not in financing or lending activities and have no motivation to charge higher than required.
One can buy gold biscuits with the help of these:
To summarize, gold investment may not be an ideal investment because of its competent returns. However, gold investment has its perks too. There are many ways to invest in gold: physical, paper, and a combination of two. Each investment type has its own pros and cons.
Make sure to assess factors such as the investment time period, purpose (to increase gold investment portfolio etc.), budget, returns etc. before deciding. It is important to look for what suits your personal requirement and avoid following a certain investment trend.