It is three cheers for gold on the eve of Dhanteras in the 75th year of India’s independence. Between 1947 and 2021, the price of the precious metal has shot up from Rs 89 (per 10 gm) to Rs 48,300 — nearly 543 times!
Gold is not only a safe haven investment while the stock market is running high and dry and inflation makes real returns from bank fixed deposits negative, the yellow metal is a very good tool for asset diversification that investment advisors often suggest.
Here are 5 ways you can buy gold this Dhanteras as a gesture of inviting good luck and prosperity. Find out which one suits you best.
1) Physical gold coin/jewellery:
Visiting a neighbourhood jewellery shop and buying a piece of jewellery or a coin is the most common practice of buying gold to mark the auspicious Dhanteras.
But then buying physical gold in the form of coins or jewellery has its demerits, too. With the physical gold, you purchase a lot of apprehensions such as concerns about the purity of the metal, theft of the jewellery or coin, cost of keeping it in a bank locker and so on. The tax on high value transactions is additional.
There are, however, easier and more secure ways of buying gold, that is, paper gold or digital gold.
There are many ways to buy paper gold or digital gold and you need not be apprehensive of the purity of the metal underlying these paper/digital units of gold because they always invest in 99.5% pure gold.
In other words, paper/digital gold is akin to gold derivatives and closely emulates the return in physical gold.
Here are different ways to invest in paper/digital gold
2) Gold Exchange-Traded Funds:
The most popular form of paper/digital gold is Gold ETF. It is also the most cost effective way of investing in paper gold. The units of Gold ETFs are traded on stock exchanges like any other ordinary shares of companies. Hence, Gold ETFs are highly liquid, that is, you can buy or sell units of Gold ETFs on any stock exchange as many times as you want during a working day.
Gold ETFs invest in 99.5% pure gold and units based on the price per gram of gold are sold to investors. So, instead of holding physical gold, you own units of Gold ETFs in digital or paper form.
3) Gold Mutual Funds:
Gold Mutual Funds are also a form of paper gold. But gold mutual funds can be of two types. One kind of gold mutual fund, such as DSP World Gold Fund, invests in shares of gold mining companies. The other kind of gold mutual fund, such as Axis Gold Fund, invests in gold ETFs.
The first type of gold mutual funds invests in shares of companies that are associated with gold mining and distribution of the precious metal. As the price of gold goes up, these companies make profits and their share price goes up.
But the share price of these companies swings more in conjunction with the share market movement rather than gold price movement.
This is the flipside of investment in such gold mutual funds. Most gold mines in the world are very old and their production is gradually decreasing over time. If a gold mining company fails to strike a good new reserve/mine, its share price may fall.
4) Sovereign Gold Bonds (SGB):
Sovereign Gold Bond is the latest addition to paper gold investment bouquet. While these bonds are issued by the Government through RBI and hence are sovereign guaranteed, these are also tradeable on stock exchanges. These bonds mature after eight years of their issuance, and you can exit as early as in the 5th year. These bonds pay an annual interest of 2.5%. The price of the bond on issuance is pegged at the price of 99.9% pure gold on the day and on maturity the redemption value will also correspond to the market rate of 99.9% pure gold during that time. The bonds are denominated in multiple grams of gold with a basic unit of one gram.
The interesting part is that if you invest in a Sovereign Gold Bond during its issuance (that is, not via stock exchange or any secondary market), you do not have to pay a capital gains tax on the maturity.
5) Gold Savings Scheme:
Then there is the Gold Savings Scheme of individual jewellers who allow you to deposit a fixed amount every month for the chosen period of time. At the end of the term, you can buy gold/ornaments from the same jeweller at the prevailing price of gold and at a value equivalent to the total money deposited in the savings scheme along with a bonus equivalent to one month’s installment. However, the risk of buying physical gold does linger around with this option.
If you have a question, share it in the comments below or DM us or call us – +91 9051052222. We’ll be happy to answer it.
– Porichoy Gupta
