Dhanteras 2024: Looking to buy gold coins? Here are smarter ways to invest

Some banks that offer gold coins include State Bank of India (SBI), HDFC Bank, Bank of Baroda, ICICI Bank, Union Bank of India, among others.

Dhanteras — the auspicious festival marking the beginning of Diwali — has long been synonymous with investing in gold. The price for the precious yellow metal is Rs 78,245 as per IBJA for 10 grams. Despite the high price, this age-old tradition continues to shine brightly, with gold coins remaining a popular choice for investors.

As you prepare to embark on this festive journey, here’s a look at the benefits, pitfalls, and essential considerations of investing in gold coins through banking channels.

Gold Rush: Banks selling 24K gold coins

State Bank of India (SBI), HDFC Bank, Bank of Baroda, ICICI Bank, Union Bank of India (UBI), among others, sell gold coins. These banks are offering gold coins with an approval from the Reserve Bank of India (RBI) to sell gold coins.

The gold coins are being sold in the denominations of 2 grams, 5 grams, 8 grams and 10 grams with respective bank's logo on the back of the coins.

The advantages

Banks offer gold coins with 24 karat purity and tamper-proof packaging. They offer gold coins with purity certification and competitive pricing based on the daily market rates of gold. You can purchase them online or through their mobile banking application.

To purchase a gold coin from the bank, you require a copy of the PAN card (permanent account number) and submit an application form. You can purchase gold coins from designated bank branches.

Investors can purchase gold coins from participating banks. For example, UBI allows both customers and non-customers to buy gold coins from designated branches, using cheques or issuing debit instructions from their accounts. Non-customers can pay cash for purchases under Rs 50,000, while larger transactions require cheques or demand drafts.

However, before you go ahead with purchasing gold coins from banks, you need to take several factors into account.

The price-tag for gold coins

Purchasing gold coins from banks solely for investment may not be prudent because of inflated prices. According to Donald Gonsalves, founder of SimplePath financial advisory firm, banks charge up to 10 per cent more than market rates, making the premium a significant drawback. Although banks attribute this difference to the coin's purity, assurance, and security, investors end up paying above market rates.

Also read | Why Indians like buying gold

Banks don’t buy back gold coins

Selling gold coins for cash poses a challenge, as banks cannot accept them, even if purchased from their branches. According to Gonsalves, the RBI mandates this policy. Consequently, investors must find alternative buyers, typically jewellers, who take advantage of the investors' helplessness and offer market prices lower than the original purchase price.

Encashment of gold coin is difficult

Investors face significant challenges when attempting to encash gold coins purchased from banks because of limited resale options. “Unlike gold bought from reputable jewellers, which typically offers easy resale, bank-sold gold coins pose unique encashment hurdles,” said Harshil Morjaria, a certified financial planner at ValueCurve Financial Solutions. The restricted market and scarce willing buyers result in substantially lower offers than prevailing market rates, potentially eroding investment value.

Also read | Festive financial planning – How to incorporate gold into your portfolio

Alternate ways to invest in gold

Gold ETFs

Investing in gold is accessible through gold exchange-traded Funds (ETFs), a type of passively managed mutual fund scheme traded on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). Similar to equity shares, gold ETFs can be bought and sold at any time during market hours via a demat account. To select a suitable gold ETF, consider factors such as fund size, liquidity, tracking error, expense ratio, impact cost, and the premium or discount to its net asset value (NAV).

Digital gold

The primary advantages of investing in digital gold include convenience and flexibility. With a minimum investment of just Re 1, digital gold eliminates the need for physical storage. You can buy, store, and sell gold instantly via apps like MobiKwik, avoiding the hassle of physically visiting stores. “Digital gold also encourages disciplined savings habits, making it affordable across a wide range of budgets and encouraging consistent investment over time through SIP options,” says Bipin Preet Singh, Co-founder and CEO of MobiKwik. Additionally, he adds that digital gold is stored securely with trusted partners to ensure the highest standards of safety and security.  It also provides liquidity, enabling seamless conversion to cash or physical gold as needed.

Sovereign gold bonds

Sovereign gold bonds offer an investment opportunity in gold without physical possession. These government-issued bonds provide a guaranteed 2.5 per cent annual interest rate throughout the lock-in period. They also eliminate the risk of theft or loss associated with physical gold storage, ensuring a secure and hassle-free investment. However, bear in mind that at present, you can buy these instruments only through the secondary market as the government has paused fresh issuances. This route is fraught with limitations due to the significant premium that the units command on the secondary market as also the relative illiquidity that investors will have to deal with.