How to start investing in gold in India

In India, gold is not just considered as auspicious precious metal, but also considered as a holistic investment. Indians have always believed in accumulating and protecting wealth by way of buying gold. With the plethora of options available in India, gold buying is now not just limited to gold jewelleries and ornaments.

Gold as an investment option

Gold is considered as a safe investment in comparison to other assets. For beginners into the investment world, for conservative investors, gold investments are a good way to start with. There are reasons why gold is considered as a less risky and safe investment. Important reasons are, it is a precious metal with never-diminishing value. It is also a worthy investment as the gold is hedge against inflation. One more important reason to invest in gold is, as an asset it has low correlation to other asset classes, hence, it can be a good portfolio diversifier.

To start investing in gold coins, gold bars, jewelleries and ornaments more than INR. 2 lakhs, you need to have a permanent account number (PAN). If you would like to start investing gold exchange traded funds, you need to have demat and trading account with the brokerage firm. Sovereign gold bonds can also be bought easily following the same way as that for buying listed shares.

What are the different options to invest in gold in India?

With the development of financial market and digitalisation of every offering, there are various options available today in India for gold investors. Let’s take a look at the gold investment options available for investors in India.

  • Physical gold: Apart from gold jewelleries and ornaments, gold coins and bullions can be bought in physical form as an investment. These are the purest physical form of gold which can be sold back later or can be used for making jewelleries. Gold coins are available in different sizes ranging from 1 gram to 50 grams. However, as gold coins are in their physical form, securing them and storing them in a safe place is a matter of concern.
  • E-Gold: This is an electronic form of investing in gold. E-gold are same as that of the physical gold, but, are held in an electronic form. Just like the physical gold is bought from banks and gold shops, e-gold can be purchased from the exchange on a digital platform. E-gold investments can be started with smaller denominations like 1 gram or 2 grams. This gold is convertible, which can be converted to its physical form at any point in time. In case of e-gold, there is fear of loss and storage issue. Holding cost can also be saved by buying gold in an electronic form.
  • Gold ETFs (Exchange Traded Funds): Gold exchange traded funds are the financial instruments that have gold as an underlying asset and is listed on the stock exchange for trading. Units bought under gold ETF are backed by physical gold, which are either in paper or dematerialised form. Basically, it’s a hybrid product that offers you benefit of trading (same as that of individual stock) and the gold investments (underlying asset). As you trade on exchange, transactions are regulated by Securities and Exchange Board of India. That means, it offers transparency and safety to the investor. Gold ETF investments also offer flexibility and liquidity to the investor without any trouble of keeping the physical gold. Gold ETF is one of the simple and flexible options to diversify to an investment portfolio. However, it’s important to have demat and trading account to purchase gold ETFs.
  • Sovereign Gold Bonds: These are the government securities denominated in multiples of grams of gold. Sovereign gold bonds are the safest form of gold investments as these bonds are issued by Reserve Bank of India on behalf of the Indian Government. These bonds are traded on exchange. Hence, to invest in Sovereign gold bonds, the investor needs to pay the issue price in cash to an authorised broker from SEBI (Securities and Exchange Board of India). Interest (assured 2.5% per annum on issue price) assured on the bond will be credited to the investor’s bank account on a half-yearly basis. Investment can be started with even 1 gram of gold. Returns will be based on the gold price. With the sovereign guarantee on the redemption amount and the interest, sovereign gold bonds are good substitutes for physical gold. Gold bond comes with an 8-year tenure. However, investor can redeem after 5 years. This bond can also be used as a collateral for loan.
  • Gold Futures: Gold futures are the standardized financial contracts, wherein an investor agrees to take delivery of specific quantity of gold from the seller at an agreed-upon price on a future delivery date. Gold futures give investors a benefit to trade gold without having to pay the full amount upfront. Compared to other gold investment options, gold futures are considered relatively risk as the gold future market can be volatile. However, risk taken can reward you in the same proportion.
  • Gold Fund of Funds: Gold FoFs invest in gold exchange traded funds. The best part is there is no need of demat and trading account for investing gold fund of funds.

What are the reasons to invest in gold in India?

Indian’s love for gold is no longer a secret. It’s an auspicious metal in India that holds a significance in each and every special occasion. It holds a special place in India both as a commodity and a metal. Here are a few good reasons for investing in gold:

  • Gold is a scarce metal that has an eternal value. As an investment asset class, gold has always maintained its value. Specifically in India, gold holds a significant place in the culture and also is considered as the great way to preserve wealth.
  • Gold is safe haven investment that acts as a hedge against inflation. And during deflation, purchasing power of gold soars.
  • Gold is a key to diversification. Gold, as an asset class, has no close co-relation with other asset classes. Hence, it’s considered as a good portfolio diversifier.
  • Gold leaves an impression of safety among investors.
  • Gold normally does well during geopolitical uncertainties, hence it’s known as the crisis commodity.
  • There are many gold investments that offer flexibility and liquidity to the investors.

    How much should you invest in gold?

Gold prices have been rising from the past month. On the other hand, equity market has seen a major fall. With the view that economic tension or uncertainty is likely to continue for some more time, gold prices may take a further rise as many would be using it as hedge against inflation. There is no doubt that the equity investments will fetch you higher return in comparison to gold over the long run. Hence, many advisors even quote gold as a ‘’dead investment’’ option, but also suggest to keep 10% of your portfolio allocated for gold investments. Yes, that’s because it is the only safe asset class to rely on at the time of economic uncertainties and rising inflation trends.

FAQs On How to start investing in gold in India

Are gold investments profitable?

Gold is a low-risk investment option. Be it any kind of gold investment option, average returns on gold investments for long-term is not more than 10% p.a. However, gold investments are the perfect hedge for inflation as they have a low-correlation with other asset classes, specifically equity.

When you are investing in gold futures and exchange traded funds, timing plays an important role to get the maximum profit.

What affects gold price in India?

India is the largest importer of gold. Hence, the gold price in Indian majorly depends on international gold price. Value of reserve currency, global geopolitical tensions, global demand and supply and interest rate trends etc are the factors that majorly affect international gold price. Let’s take a look at factors that affects gold prices in India.

  • Government gold reserves: Just like currency reserve, Reserve Bank of India holds gold reserve also. When the RBI holds gold reserve, gold prices go up as the supply decreases.
  • Inflation: During the rising inflation trend, price for gold increases as the demand for gold increases. People start buying gold to protect themselves against inflation.
  • Interest rates: Demand of gold is closely related to interest rates of financial instruments. During high interest rate scenario, people start selling gold in return of cash. This results in higher supply of gold, which brings down the price of gold. On the other hand, lower interest rate situations lead to gold price hike as people start buying gold.
  • Domestic jewellery market: Gold price is also majorly affected by demand and supply of gold in the domestic jewellery market. Usually, during festive occasions, on auspicious days and during wedding seasons, gold price shoots up as the demand for the metal increases. Apart from these major factors, there are many other factors like production cost of gold, currency movement etc. that influence the price of gold.
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