Ways to invest in Gold
During such testing times, gold investments have long been a haven for investors because of the opposite path it follows to equities. Gold, however, carries a much greater value for Indians than just an investment opportunity. When an emotion comes into play, it becomes important to pay more attention to the commodity, the risks, and benefits it carries.
In gold, it becomes even more vital because gold can be treated in two ways: as an investment or for personal use.
Why investors like gold
According to Juan Carlos Artigas, director of investment research at the World Gold Council, “Gold has a proven track record for returns, liquidity, and low correlations, making it a highly efficient diversifier.”
For investors, these qualities are particularly important:
Returns: Over certain stretches, gold has outperformed stocks and bonds, though it doesn’t always beat them.
Liquidity: If you purchase certain types of gold-based assets, you can convert them to cash easily.
Low correlations: Gold often performs differently from stocks and bonds, meaning gold may fall or vice versa when they go up.
Also, gold offers potential other advantages:
Diversification: As it is known to be a relatively stable investment, gold is often used by investors as a hedge against inflation and a risk diversifier. Because physical gold properties do not change, it is often considered a reliable store of value. It is considered a good hedge against inflation since its value moves in the opposite direction of the U.S. dollar.
Performance in times of trouble: In particular, physical gold is often seen as a type of insurance; if the economy were to collapse, since it’s a tangible asset, you can use physical gold to trade. Also, during times of turmoil, the value of gold tends to increase, as was the case in the wake of COVID-19 and during the aftermath of the terrorist attacks of Sept. 11, 2001.
The potentially lower tax rate for physical gold: A lower tax rate can come with physical gold. Gains made on collectibles (in this case, gold) held for less than a year are treated as ordinary income, but taxes are capped at 28 percent on gains made on collectibles held for more than a year. So, depending upon your marginal tax rate is, this could be beneficial.
These are a few of the main advantages of gold, but, like all investments, investment is not without risks and disadvantages.
Although sometimes gold performs well, it’s not always clear when to buy it. Since gold by itself doesn’t generate cash flow, it’s difficult to decide when it’s cheap. For stocks, where there are clearer indications based on the firm’s earnings, that is not the case.
Also, since gold does not create cash flow, investors have to rely on someone else paying more for the metal than they did to profit from gold. On the other hand, owners of a company, such as a gold miner, will benefit from the rising gold price and the company growing its earnings. So there are different ways of saving and winning with gold.
It is now possible to buy and invest gold in different forms: real gold, digital gold, gold bonds, exchange-traded funds (ETFs), and more. Sell gold online is a whole ballgame. Let’s take a look at the various forms in which you can own gold, as an investor and as a buyer, what suits you best. Just read on!
Digital gold can be purchased from various Fintech start-ups on various digital platforms.
Investment in digital gold can also go as low as Re 1. In general, such platforms have an association with gold merchants or producers like Augmont. At live market rates, you can make gold purchases and redeem them whenever you want.
You can either choose to get the value of your investment or get gold for physical delivery. Check the platform that you use to invest in digital gold, though. Not all systems can make it possible for you to take physical gold on delivery. Your digital gold investment is backed by physical gold. For investment purposes, it is possible to use digital gold.
You can buy gold jewelry from jewelers, but it may be costly for you to consider gold jewelry as an investment option.
One of the key reasons for this is that there are charges for producing gold jewelry. If you consider it as an investment, you will not get your charges back while selling it back. Depending on how the metal is doing, your returns may be affected.
Depending on the type of jewelry, the production charges can range between 5-23 percent. Jewelry’s only benefit is that you get physical ownership. To it, there is a touch and feel element.
Bars and Coins
Coins and bars can not hold much value for ‘use.’ These still bear charges, but they are much smaller than jewelry. In certain instances, they are less than Rs 1,000. The risk of robbery and physical harm lies in both coins/bars and jewelry.
Bonds of Gold
Sovereign gold bonds were started in 2015 by the Government of India as an initiative. The Reserve Bank of India supervises the sale of such bonds. As an alternative to owning physical gold, it was started by the government.
As an investment opportunity, this is an excellent way of owning gold. These bonds have an eight-year term with a five-year lock-in period.
Bonds are funded by gold and can only be redeemed in cash. Any management fees for this fund are not charged to investors.
Gold ETFs are exchange-traded funds that invest in gold. On the stock market, they are traded. Depending on the broker, ETFs bear Demat account charges that can vary from zero to Rs 3,000.
Both mutual funds have expense ratios, and the expense ratio for ETFs is normally between 0.5 and 1%. A gold ETF does not let you down gold but gives you exposure to the commodity’s performance.
The Funds Gold Fund (FOFs)
Fund Funds are mutual funds in which other mutual funds are invested. They bear a higher degree of risk and are more costly. Gold mutual funds invest in gold ETFs and, therefore, bear the gold ETFs they invest in and their fees.
Schemes of Gold Savings
Savings schemes for gold are schemes run by jewelers. You have to regularly deposit money with a specific jeweler of your choosing (mostly monthly).
You can purchase gold from the same jeweler for the amount you invested with them after the scheme matures. The jeweler can add a bonus to the sum at the end and give you the added amount of your jewelry.
When they think about how to invest in gold, many people prefer such strategies, but this approach carries a few risks.
Earlier, we have seen many instances where the jeweler collected money from his clients and shut down the store at the end of the period.
You need to be careful and do a thorough review of the jeweler’s background. Charges will also be applicable here. The charges can range from 6-35 percent, depending on the type of jewelry you want at the end.
It will cover up the jeweler’s bonus amount if the charges are too high, and your total returns will decrease.
In the end, do you want to own gold? This is the first question to address that you need. The best answers to how to invest in gold digitally for beginners are gold ETFs, digital gold, and sovereign gold bonds, but they all deliver distinct purposes.
Sovereign gold bonds are a safer choice if you are looking for a reasonably risk-free investment since they deliver a fixed rate of interest at 2.5 percent. Digital gold is related to the price of live goods. Depending on how the commodity market is doing, your returns will go higher/lower than the interest offered on SGBs.
Digital gold allows you to either own physical gold at the end (depending on the platform you select) or gets the monetary value at the end when it comes to online modes. In case you have decided you do not want to own the gold, you can only opt to get your redemption value when the redemption/maturity is nearby.
Gold bonds, ETFs, and gold funds only allow you to be exposed to the asset’s market performance. If you choose these options, you need to be doubly sure that on maturity/redemption, you do not want physical delivery of gold.
All sources of gold differ cost-wise. Our government floats no charge for Sovereign Gold Bonds. The Exchange Board of India and The Securities has set the fees for gold ETFs and gold fund fees (Sebi).
It is not for all to invest in gold, and some investors stick to putting their bets on cash-flowing companies instead of trying to rely on someone else to pay more for the shiny metal. That’s one explanation why legendary investors like Warren Buffett are wary of investing in gold and advocate buying cash-flowing companies instead. Plus, owning stocks or funds is simple, and they’re highly liquid, so you can convert your position to cash quickly if you need to.