Investment In Gold: A Guide

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Gold opens all locks; no lock can hold against the power of good

~ George Herbert.

The yellow glinting rays of gold ascertain the glorious future of its master. The importance and elegance of gold have remained constant and valid since time immemorial. 

From the ancient epochs to the expanding era of modern technology and digital media, gold has never ceased its voyage as a beautification commodity of merchandise and a currency of choice determining the status of an economy. The recent stocks and share marketing investments suggest gold investments as a competent and reliable choice when done under an adequately planned agenda. Herein, let's discuss the schemes and plans available opportunities provided by the government and non-commercial organizations for investment in gold.

The choice of investment in gold can be made in the following ways:

  • Physical Gold
  • Gold Coin Scheme
  • Gold Saving Schemes
  • Gold Exchange Traded Funds
  • Sovereign Gold Bonds
  • Digital Gold

PHYSICAL GOLD: Gold Coins, Bullion bars, and jewellery

It is the most common investment that has been made with gold for many centuries. Gold can be procured as a piece of jewellery or gold coin or golden bullion biscuit from the retail jewellery marts or dealers with the liquid cash in hand. The BIS standard hallmarked coins and bars require fewer artistry skills, and hence making charges don't apply to these. Anyone can purchase it from banks, e-commerce websites, and non-banking companies apart from retail shops, which can be later exchanged for cash or moulded into jewellery of choice. All these are simple investments, but they have their pros and cons.

PROS:

  • Simplicity.
  • Inflation Hedge.
  • Security of Value.
  • Diversification of portfolio.
  • Easy trade commodity.
  • A wise choice as a family asset.

CONS:

  • Storage and maintenance of gold.
  • Prone to theft.
  • The purity of gold is always in question.
  • Ornament making charges and wastages.
  • Yields no financial income.
  • Premiums and Taxes.
  • Fluctuation of price in the market.

Gold Savings Schemes

These are another domain of investment that is easily accessible and is most trusted and used since the time of jewellery shops. The shops offer gold scheme plans wherein you must pay a fixed deposit per month for a fixed tenure. Once the scheme matures, the invested amount can be turned into gold in it's any form. The varied interests and amount of fixtures are the two main cons it offers. The purity and value of gold are yet again questionable.

PROS:

  • The regular investment adds to a valuable asset.
  • Good for short-term investments. 

CONS:

  • They are primarily savings rather than counting it to be an investment.
  • No economic returns.
  • Funds can't be monetized.
  • The necessity of buying a piece of jewellery.

Gold Mutual Funds 

The direct or indirect investment in gold reserves of stock of mining companies, gold producing and distributing syndicates, and physical gold dealers. The profit and performance of this domain depend on the pricing of gold in the country.

PROS:

  • Low minimum investment and cost.
  • Multiplication of investment.
  • Yield substantial returns.
  • Can be acquired as exchange-traded funds or as a gold savings fund.

CONS:

  • Can't earn superiority returns hence average returns.
  • Management charges as the manager would have to maintain the Demat account.
  • Fluctuating stability and highly volatile.
  • No declaration of dividends.

Gold Exchange Traded Funds (ETFs)

The investor buys a proportionate value of gold through a Demat account after proper paperwork. This is a suitable option for a skilled investor with ample time to track and manage the asset, yet changes in gold prices can affect ETFs and have no SIP option.

PROS:

  • Uniform pricing past the geography of the world.
  • Purity assurance.
  • Easy exchange trading.
  • Omit theft risks and secondary taxes.
  • Adds no indirect taxes.
  • No entry and exit limits.

CONS:

  • Economic fluctuations make stock exchanges risky.
  • Trading is time-bound. Exchanges can occur from 9.15 am to 3.30 pm on five working days.
  • The minimum requirement of 1kg of gold for delivery is the only drawback of an ETF good investment.
  • The limited volume of trade due to less demand reduces profit.
  • Taxed redeeming.

Digital Gold 

It is the most popular opportunity for gold investment, which has no requisites and is a more profitable solution. The investor can invest at least one rupee, but that will not alter the end wherein they get 24 karat gold equivalent to their investment and maturity. It has complete assurance for quality and can be bought at any time the investor wants to, and it would be deposited to the account within two working days.

In India, the sources of digital gold investment are Augmont Gold Ltd, MMTC-PAMP India Pvt Ltd, Digital gold India Pvt Ltd, and applications offering this opportunity are Paytm, Google Pay, and PhonePe, and many secured brokers are available as well.

PROS:

  • No minimum investment is imposed.
  • Assured quality and highly secured.
  • Anytime withdrawal and liquidation in two working days.
  • Track holdings online if the investment is made regularly.
  • Accepted collateral for online loans.

CONS:

  • A limit of 2 lakh for investment is found on most platforms.
  • No government-based regulating body or organisation is available.
  • Additional charges for delivery and marketing.
  • Tenure fixation in certain establishments leads to either owning or selling at the end of the period.

Sovereign Gold Bonds

The Indian Government issues it through the Reserve Bank of India, and they are the safest way of digital gold investment. The interest of these bonds is 2.50% per annum with a five-year lock-in period and an overall tenure period of eight years.

PROS:

  • Best portfolio diversification option.
  • Annual interest payments can be divided into two parts and can be paid in 6 months.
  • Available in paper and Demat format.
  • TDS isn't applicable. 

CONS:

  • Long maturity periods.
  • Capital loss if prices lower when redeeming as the SGBs are directly linked to international markets.

Though the investment journey in gold can significantly diverge with various benefits and shortcomings, there are certain things to keep in mind before investing.

  • Ensure the safety and security of investment.
  • Plan the budget and study the efforts to be invested in the method that is preferred.
  • Check the authenticity, purity of gold (24K), and resale values of the chosen gold investment.
  • Stock market-based exchanges are highly prone to fluctuations, and they can be due to various factors. Hence check the scheme and background of the dealer before investment.
  • Stock markets are always on an unpredictable spin; hence diversification of investment is an advice to be considered.

Gold is always treated as a gift of God, and it will remain precious and valuable throughout. Any form of gold is an investment. Yet, choose what is wise for you and start your investment today. Happy investing!

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