We will read in this article – Best Ways to Invest in Gold, Investing in Gold ETF, How to Invest in Gold, Investing in Gold ETF India, Benefits of Investing in Gold ETF, Risk of Investing in Gold
8 Best Ways to Invest in Gold
Gold has always been a great asset in India. Along with the financial value of gold, it also has a different emotional and social value. This is an important reason to keep it in physical form in the form of jewellery, coins or ciscuts. However, in terms of investment, you can invest money in gold in different ways. Come, let’s see about them here.
Physical gold
You can invest in physical gold by buying gold coins or biscuits from jewelers, banks, online stores, NBFCs, etc. Gold coins are usually of standard denomination like 5 and 10 grams. Whereas biscuits (bars) are of 20 grams. They have 24 carat purity. They come with hallmarks as per BIS standard. This is the traditional way of investing in gold. Investors usually buy gold on auspicious days of the year. With this, they collect gold over time.
Sovereign Gold Bond (SGB)
The government issues Sovereign Gold Bonds (SGBs) at different times. Investors can subscribe to SGB as and when its issue is issued. Investors can invest in it in denomination of 1 gram. On allotment, they are given a gold bond certificate. The investor gets the value of gold at the time of redemption. Its rate is fixed on the average closing price of the last three days. Interest is paid to the investor at a pre-determined rate during the term of the bond. When the issue of SGB is opened, investors can apply directly or through their agents at the bank branch, post office, authorized stock exchanges.
Digital gold
The biggest advantage of investing in digital gold is that it can be bought in minimal quantities. You can earn whenever you want by selling your gold in the live market. Some platforms even offer physical delivery of gold. The disadvantage of investing in digital gold is that there is no regulatory mechanism for it.
Gold Mutual Funds
These are the funds that invest in ETFs that invest in gold. Generally, the investment cost in this is very less. It is only around 0.09-0.20 percent. These are a type of open-ended funds, in which if you exit before one year, you may have to pay one percent of the amount as penalty. However, there are some gold mutual funds too, whose exit load is only 15 days. Nippon India Gold Savings Fund is also one of them.
Gold Savings Schemes
This is a scheme in which it helps in raising money to buy gold at a later date. There is also a discount on gold purchases. This scheme is best for those people who want to invest in gold but have less money. There are many such options from the investment point of view, whose expense ratio is very low.
Jewelery
Experts say that from the investment point of view, one should never invest in gold. Actually, a lot of making charges have to be paid on the jewellery. Apart from this, GST is also payable on it. Together these two charges can reach up to 25 percent. However, jewelry has the highest liquidity. There is also a risk of it being stolen.
Gold bars and coins
If a person wants to invest in physical gold, then gold bars or coins can be a good option for them. On this, 3% GST and making charges have to be paid. The making charges on gold bars and coins are less as compared to jewellery.
Gold ETF
One can also invest in gold through Gold Exchange Traded Funds (ETFs). The units of Gold ETF are listed on the stock exchange. You can buy these units from there. Their value is on the lines of gold prices. You need to have a demat and trading account to invest in gold ETFs.
What are the things to keep in mind? Making charges are levied with the purchase of physical gold coins. Experienced investors can invest in gold through commodity exchanges using gold futures and options.
Investing in Gold ETF | Benefits of Investing in Gold ETF
Investing in gold ETFs are not only growing in popularity but are also considered to be one of the best ways to invest in gold. Gold ETFs have gained a lot of importance in the last decade. Gold Exchange Traded Funds first came to Australia in 2003 with the “Gold Bullion Security” being launched. Since then many countries (including India) have launched Gold ETFs. The first Gold ETF in India was Gold BeES, this February was launched in 2007.
How do Gold ETFs work? Structure of Gold ETF
Before Investing in Gold ETFs, it is important to know the structure under which they operate. Gold ETFs are backed by physical gold on the back-end. So when an investor buys a gold ETF on the exchange, the entity involved in the back-end buys the physical gold. Gold ETF units are listed on an exchange, such as Gold BeES, listed on the National Stock Exchange (NSE) and they closely track the actual prices (called spot prices) of gold. There is constant buying and selling by “authorized participants” to ensure that the gold ETF and gold are priced the same. An authorized participant is an entity deputed by a stock exchange (in this case NSE) to manage the buying and selling of an asset (in this case physical gold). Exchange trading funds. These are usually very large organizations.
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- The buyers and sellers (investors) of Gold ETFs use the Exchange Platform (NSE), so trading is easy. They can place buy and sell orders, and the broker will execute the same.
- Any additional buy or sell nets (after buyer and seller transactions) are settled with authorized participants who buy and sell physical gold. So if there are no buyers and someone wants to sell, the authorized participant will create Liquidity, buying the units of the Gold ETF from the seller.
Benefits of Investing in Gold ETF
Some of the investment benefits of Gold ETFs are:
1. Small Disintegration
Going to a retailer to buy very small amounts of physical gold would require a decent amount, plus gold shops would not be allowed to buy very small amounts of pure gold. Gold ETFs can be bought and sold and traded in very small amounts.
2. Cost Efficiency
Another advantage of investing in gold ETFs is that it is cost-effective. There is no levy like the charges associated with premium gold ETFs, one can buy at the international rate without any markup.
3. Convenience for long term holding
Unlike physical gold, there is no wealth tax on Gold ETFs (in India). Also, there is no issue of storage where one is concerned about security etc. The units are held in the name of the individual in the Demat account. Usually, this is a problem if one stores a good amount of gold in a home or ebank locker.
4. Uniform Availability
There is no issue with respect to the availability of Gold Bees (or other Gold ETFs) on the Exchange, as the Exchange is responsible for trading and selling.
5. Liquidity
Liquidity is available when traded on the exchange and there are market makers (authorized participants) to create liquidity. So one does not have to worry about finding a store to sell or even testing the mark-down or even purity when faced with selling.
6. No risk of theft
Since the units of the Gold ETF are held in the demat (dematerialized) account of the holder, there is no risk of theft.
7. Purity
One of the biggest advantages of investing in gold ETFs is that the purity is stable. There is no risk of purity as each unit is backed by the price of pure gold.
Best Gold ETF 2021
The best underlying Gold ETFs to invest in India are:
| Fund | NAV | Net Assets (Cr) | 3 MO (%) | 6 MO (%) | 1 YR (%) | 3 YR (%) | 5 YR (%) | 2020 (%) |
|---|---|---|---|---|---|---|---|---|
| Aditya Birla Sun Life Gold Fund Growth | ₹14.6334 ↑ 0.06 | ₹237 | -0.2 | -1 | -7.7 | 12.3 | 8.1 | 26 |
| Invesco India Gold Fund Growth | ₹14.2202 ↑ 0.02 | ₹47 | -0.3 | -1.1 | -8.3 | 13.5 | 8.4 | 27.2 |
| SBI Gold Fund Growth | ₹14.621 ↑ 0.04 | ₹1,137 | -0.3 | -0.8 | -8 | 13.4 | 8.3 | 27.4 |
| Nippon India Gold Savings Fund Growth | ₹19.3289 ↑ 0.06 | ₹1,362 | -0.1 | -0.6 | -8.1 | 12.9 | 8 | 26.6 |
| Kotak Gold Fund Growth | ₹19.5427 ↑ 0.06 | ₹1,013 | -0.7 | -0.9 | -7.5 | 13.7 | 8 | 26.6 |
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Gold ETFs and Measurement Performance
The performance of exchange traded funds (including gold ETFs) and index funds is measured by an indicator called “tracking error”. Tracking error is nothing but the divergence between the performance of the ETF (or index fund) and the performance of the benchmark it seeks to copy. The lower the tracking error, the better the ETF.
Indians are very culturally inclined towards the purchase of gold, whether for ornamental purposes or for wealth creation. Whereas earlier physical gold was preferred, Gold ETFs are clearly superior in every aspect (except for ornamental purpose where one-time purchase of physical gold is required), storage, security, wealth tax, liquidity, no mark-up With benefits like etc. One can use various options like Gold BES etc, where one can buy gold on the exchange!
What is the system of paying tax on gold?
At the time of sale: No capital gains tax is payable if the Sovereign Gold Bond is held till maturity. Whereas, all other gold investments are subject to capital gains tax. Like debt instruments, gold investments are subject to capital gains tax. Capital gains tax is to be paid on the amount the investor earns on exiting gold investment.
While buying: In the budget in February, the Finance Minister had announced that the import duty on gold is being reduced to 7.5 percent. This is less than the previous tax regime. However, an additional tax of 2.5 per cent will be levied in the name of Agriculture Infrastructure and Development Cess in the import duty. GST of 3 per cent is to be paid on gold and 5 per cent GST is to be paid on jewelry making.
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Disclaimer:
All efforts have been made to ensure that the information provided here is accurate. However, no guarantee is given about the accuracy of the data. Verify the plan details from the document before making any investment.
This article is taken from different websites – Fastread is not responsible for any errors in it and please consult your experts before investing.