The Beginner’s Guide- How to Invest in Gold?

Thinking of the best way to invest in gold? You are not alone; an overwhelming majority of investors usually consider gold as the best possible investment for the future and particularly for the welfare of future generations. Gold is a jewellery that is not only used for periodic or regular usage but also as an investment for financial emergencies that may crop up in the future. There are methods of owning gold including physical ownership and paper ownership alike. You can physically purchase gold through jewellery, gold bars and coins and paper ownership will naturally give you a chance to own units in gold ETFs or exchange-traded funds along with SGBs or sovereign gold bonds. There are gold mutual funds or FOFs (fund of funds) which make further deployments in gold-based ETFs.

There are also gold MFs or funds of funds which also make investments in shares of global gold mining entities/companies. Buying physical gold is always an easy method if that is what you feel is the best way to invest in gold. You can always visit your neighbourhood jeweller or your trusted jewellery brand or store. Some jewellery brands allow online orders on their sites while some of the e-commerce platforms also help you purchase gold coins online itself and get them delivered to your address likewise. However, physical gold ownership comes with its own set of risks including safety risks and also higher costs along with designs that may get outdated in the future. Then you have to account for making charges or costs of crafting jewellery which may hover between approximately 6-14% of the gold cost and this may go up to 25% for special or exclusive designs as well. Naturally, you may seek other alternative methods of investment in this regard.

Best way to invest in gold- Some other methods

While there is no single best way to invest in gold, here are some other ways that you can definitely consider:

Gold Coin Scheme- You can purchase gold coins from banks, jewellers, NBFCs (non-banking finance companies) and e-commerce portals alike. The Government has unveiled indigenous coins which will showcase the National Emblem or Ashok Chakra on one side with Mahatma Gandhi being shown on the other side. These coins come in 5 and 10-gram denomination while gold bars are 20 grams in terms of quantity. Indian gold coins and bars are of 24 karats in terms of their purity and 999 fineness with highly advanced anti-counterfeit attributes and packaging that is tamper-proof. They will be hallmarked on the basis of BIS guidelines and distributed through designated MMTC outlets and through listed branches of banks and post offices. MMTC also has the buyback option for coins across its showrooms in India. It will be buying back the coins with the packaging and original invoice at the prevailing base rate of gold.

Gold Savings Plans– These gold or jewellery savings plans may have two varieties. One will enable you to deposit a fixed sum each month for the selected duration. Whenever this duration concludes, you can purchase gold at the value that equates to the entire sum deposited, inclusive of a bonus amount. This conversion will be carried out at the applicable gold price upon maturity. In most scenarios, the brand will add one month’s instalment amount at the conclusion of the duration as a cash-based incentive. A gift item may also be offered likewise.

ETFs (exchange-traded funds)– An alternative way of paper gold ownership is gold ETFs (exchange-traded funds). These investments, i.e. selling and buying usually take place on stock exchanges with gold being the core or underlying asset. The high initial charges for buying and selling for ownership of coins, bars or jewellery are absent for lower-cost ETFs. Pricing transparency is a plus point since the price you buy the same is the closest one to the real gold price. You will require a trading account and Demat account with a brokerage to start buying either at periodic durations via systematic investment plans or SIPs or through a lump sum. There are zero exit or entry charges although you should keep an eye on the expense ratio or the cost of managing the fund. This usually hovers around 1% while you should account for the brokerage cost and tracking errors.

SGBs- Sovereign gold bonds or SGBs enable another method of ownership for paper gold. They are issued by the Indian Government although they are not always available. A window is periodically opened by the Government for selling fresh SGBs to the public. This may happen once in every couple of months and the window opens for a limited duration. Those looking to invest in SGBs in between should purchase earlier issues at the market value which are listed in the secondary market.

Digital- Mobile wallets and other brokerages/portals often provide you with an option for buying gold coins, jewellery and bars online along with Digital Gold. There are several such digital gold investment options available currently.

 Conclusion

The initial physical ownership cost of gold is almost close to 10% as per estimates and this may go higher for jewellery. Gold ETFs and SGBs are more affordable with the latter having zero entry cost while the former could have around 1% costs overall. SGBs will be a good option for those investing for longer durations since they mature after the passage of 8 years although the lock-in period concludes after the 5th year. Gold ETFs have higher liquidity and it is easier to buy units online as well. The ownership risks and security hassles do not exist in both these methods. Gains from SGBs, upon redemption, are free from taxes although Gold ETF gains post 3 years will attract 20% taxes after indexation. Consult your financial advisor and choose accordingly.

Christophe Rude
Christophe Rude
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