Gold buying: 6 ways to buy and invest in gold Here is a look at six ways you can buy and invest in the yellow metal
Many, if not most, Indian households own gold in some form or the other. Traditionally, Indians have bought gold as a way of saving for a rainy day or their important financial goals. Therefore, buying gold is seen as a financial support system.At present, there are two routes to buy gold -- paper and physical. Within each, there are various ways to buy the yellow metal. Here is a look at six ways you can buy and invest in gold.
Physical gold
Gold jewelleryOwning gold in the form of jewellery has concerns like safety, high costs, and outdated designs. Then there are the making charges which can bump up the cost of gold jewellery. Making charges vary depending on the type of gold jewellery you are buying. If the design on the gold jewellery is intricate, then there will be high making charges.
Also read: What is the latest gold price
Gold coinsGold coins can be bought from jewellers, banks, non-banking finance companies, and now even e-commerce websites. Gold coins and bars are of 24 karat purity and 999 fineness. All coins and bars will be hallmarked as per the BIS standards. It is advisable that one must buy gold coins in a tamper proof packaging. The packaging is a guard against counterfeiting, fraud, and damage. Gold coins are available in the market ranging from 0.5 grams to 50 grams in weight. However, one must check the availability of the denomination you wish to buy from the jeweller.
Gold savings schemesOver the past few years, many jewellers have launched gold savings schemes. Gold or jewellery savings schemes allows you to deposit a fixed amount every month for the chosen tenure. When the term ends, you can buy gold (from the same jeweller) at a value that is equivalent to the total money deposited, including a bonus amount. This conversion is done at the gold price prevailing on maturity. In most cases, the jeweller adds a month's instalment at the end of the tenure as a cash incentive or may even offer a gift item.
Paper gold
Gold exchange-traded funds (ETF)An alternate way of owning paper gold in a more cost-effective manner is through gold exchange-traded funds (Gold ETF). Such investments (buying and selling) happen on a stock exchange (NSE or BSE) with gold as the underlying asset.
The transparency in the pricing of a gold ETF is another advantage. The price at which it is bought is probably the closest to the actual price of gold and therefore the benchmark is the physical gold price.
To invest in a gold ETF, you need a trading account with a stockbroker and a demat account. One may either buy in a lump sum or even at regular intervals through systematic investment plans (SIP). You may even buy 1 gram of gold.
There are no entry or exit charges, but there are three costs. One is the expense ratio (for managing the fund) which is generally low compared to other mutual funds and is around 1 percent. Second, is the broker cost that needs to be accounted for every time you buy or sell gold ETF units. Third, which technically is not a charge but impact returns is the tracking error. It arises because of the fund's expenses and cash holdings thus not mirroring the actual gold price.
Sovereign Gold Bonds (SGB)Sovereign Gold Bonds are issued by the government but availability is not 'on-tap basis'. Instead, the government will intermittently open a window for the fresh sale of SGBs to investors. This happens around twice in a year and subscription period if open for about a week. For investors looking to purchase SGBs anytime in between the only way out is to buy earlier issues (at market value) which are listed in the secondary market.
Digital goldCustomers can buy 'digital gold' using payment apps such as Paytm, PhonePe and Google Pay. The customers can buy gold from Re 1. Most of these payment apps have tied up with MMTC - PAMP (a joint venture between public sector MMTC and Switzerland's PAMP SA) or SafeGold to sell gold.
Also read: Want to invest in Sovereign Gold Bonds? 7 watch outs to know before investing in SGB
What should you do?
The initial cost of owning physical gold in the form of bars or coins is anywhere around 10 per cent and it is even higher for jewellery. SGB and Gold ETF, both paper-gold, are cost-effective as there is no entry cost in SGB while costing for gold ETF could be around 1 per cent.SGB should benefit those who want to invest in gold for a longer period as its maturity is after 8 years, although the lock-in ends from the fifth year. However, gold ETF provides much better liquidity than SGB.
Also read: Gold jewellery with 6-digit HUID number can be sold from April 1, 2023: What it means for consumers
One needs to look at the taxation aspects as well. Gains in SGB at the time of maturity are tax-exempt. However, the taxation rules in case of mutual funds and ETFs have been revised from April 1, 2023. As per the new rules, if the equity portion in the mutual fund scheme or ETF does not exceed 35% during the financial year, then such mutual fund schemes and ETFs will not be eligible for indexation benefit. Usually, gold mutual funds and ETFs do not have such exposures.
SGBs earn the investor an additional interest of 2.5 per cent per annum.
Do keep in mind that for investments, one should not have more than 10 per cent of the total portfolio in gold.
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This story originally appeared on: India Times - Author:Faqs of Insurances
