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Personal Finance September 21, 2017

The Guide to Investing In Gold

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Gold may not be hovering at itsall-time high, but anindisputable truth is that it is one of the safest havensfor investors since time immemorial. Alternatives to gold, from l and to state-sponsored saving schemes to stock market, may have found takers but they many a time give lesser-than-expected returns, sometimes even negative in case of l and and shares; gold, however, st ands out as aleaderas no long-run dip in gold prices could ever be seen.

In the backdrop of political upheaval in the US, dollar touching its multi-year low, lack of clarity on Federal Reserve’s stance on interest rates and other key events, gold lately hit a multi-week high. So should you grasp this opportunity and rush to the nearest shop or a bank to purchase a gold coin or bar? No, we suggest. In today’s world of myriad options, investing in physical gold has more cons than pros. It’s rather a time to look at certain alternatives to physical gold that will not only give more or less the same return, at times even higher but also entail other benefits along with.

E- Gold

National Spot Exchange Limited (NSEL) offers E-Gold that can be held electronically in a demat account. An investor can buy E-gold through NSEL and sell it after making a profit. There is an option to take physical delivery as well. Like physical gold, E-gold qualifies for long term capital gain if held for more than three years.

An advantage that E-gold holds above the physical gold is that no separate storage is required for the same, saving the investor the storage and insurance fees. 

Buy shares in a gold company, gold futures, and options

Instead of buying E-gold directly, an investor can also look to buy shares in a company that produces gold. The value of such stock is strongly correlated with the value of gold itself. Thus, the investor will not only earn the profit that he/she will make due to gold price movement but can also earn a dividend on stock. A person can also invest in gold through financial derivatives instruments. Like other derivatives, gold futures and options are risky, but the investor holds a chance to earn higher returns. 

Gold Exchange Traded Funds(ETFs), Gold mutual funds

To invest in gold, there is also an option to put money in gold ETF units. Gold ETF is a fund that invests in a range of gold securities, thus minimizing risk and maximizing the returns through diversification.Gold ETF units can be traded on the exchange and investor can easily sell it to buy physical gold whenever needed. The best part is that the minimum lot size is 1 unit.

The perk of investing in Gold ETFs is that one need not worry about the purity of gold, plus you can save on storage fees paid to the bank for lockers to keep gold and insurance cost to ensure its safety.

Another alternative is gold mutual funds which will invest in gold ETFs on your behalf, and you don’t even require a demat account to invest in mutual funds, saving brokerage charges. SIP investment in gold is also possible through these gold funds.

Sovereign Gold Bond Scheme

The most talked about scheme today is the state-backed sovereign gold bond scheme thatnot only offers buyers capital gains but also the interest of 2.5 percent that shall be paid twice a year. What more? You get liquidity with this scheme as bonds can be traded on the exchange, and these too like gold ETFs can be bought in small denominations (hence the best buy for small investors). Some negative here is a lock-in period of 8 years,but since you do not have to pay any tax on capital gains, you st and out as a winner.

What if you already hold physical gold but want to benefit from schemes mentioned above? Here is your option. The government has come up with gold monetization scheme under which you can deposit your gold holding above 30 grams and earn interest at 2.25 percent for a medium-term deposit and 2.5 percent for long-term deposits. Here you do not have to pay any tax either on capital gains or income from interest. Your idle gold holding thus can earn you money without any sacrifice.

Gold will always remain an attractive investment option as it has been for long. The only change is the shift of sentiments from holding physical gold to purchasing paper gold in shape of ETF, bond or a stake in the mutual fund. In the short-run, gold may have witnessed diminished or negative returns; in long-run, however, it has never troubled its holder. Still, we advise not to put more than 5-10% of your investment in gold.

Also read: Are fixed deposit your safest bet

Disclaimer – The views or opinions expressed in the article are the personal opinions of the author and do not in any way reflect the views of Suvipra. Suvipra does not assume any responsibility or liability for the same.

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2 responses to “The Guide to Investing In Gold”

  1. Bharat Bhatnagar says:

    Wonderful article

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