The love for gold has been intrinsic to the Indian psyche – right from our ancestors using it as a form of currency to it being a preferred mode of investment for many Indians. Physical gold in the form of jewellery has been an all-time favourite form of investing in gold In India due to its qualities of being a legacy you can leave behind for future generations.
Ease of liquidity especially in the time of need is advantageous as gold works as a hedge against inflation and can be of use during times of concern. Most of the factors that affect other investments do not substantially affect gold price and it delivers positive returns over the long run, even outperforming key asset classes. Hence, gold works as a stabilizing element to one’s financial portfolio is a strategic addition in your investment.
If matured investors are looking to invest in gold as pure investment without the hassle of storage or paying for making charges in case of jewellery - they can consider alternative ways of investing for better returns, flexibility in amount invested as well as lower transaction costs. Here are some ways in which investment portfolios can be diversified by investing in gold other than in its physical form -
GOLD ETF
Another Easier and more cost-effective option for owning gold bars or coins directly is investing in Gold Exchange Traded Funds. All you have to do is open a demat account and hold gold units in a paper format - similar to how mutual fund units are held. Gold ETFs are issued by fund houses and are listed and traded on the stock exchange. Especially feasible for small investors, as the minimum investment is only the price of a single share of the ETF. Holding one unit of Gold ETF equals holding one gram of gold
GOLD FUND
Gold funds are a type of mutual funds that invest in gold reserves - directly or indirectly. They offer a convenient avenue to invest in gold without having to buy it in physical form. Investors offset the imbalance and lower the risk of investing in fluctuating markets by diversifying their portfolios with 10-20% investment in gold funds. Liquidation of gold funds is easier than other assets. Since investment can be as low as Rs. 500 – gold funds also allow investments by individuals belonging to low income groups
DIGITAL GOLD
Digital gold is 24K pure gold stored in digital vaults that users can access via digital channels. Once you invest in digital gold through a digital gold platform , that company purchases an amount of physical gold equivalent to your investment and stores it under your name in secured vaults. You can buy or sell digital gold any time you want – all you need is an internet connection! For investors who want to reap the dual benefits of investing in gold as well as the option to easily take secured physical delivery right at your doorstep (and not worry about storage) – digital gold is a smart investment.
GOLD MONETIZATION SCHEME
Gold Monetization Scheme is a government scheme where one can open an account to deposit their physical gold and earn tax-free interest. At the time of maturity, the bank returns the gold in the form of bullion or gold coins
SOVEREIGN GOLD BOND
Sovereign Gold Bonds or SGBs are financial securities issued by the Government of India through the Reserve Bank of India. Both initial purchase and redemption on maturity for these bonds happens in cash. They are denominated in grams of gold and investors can purchase quantities as low as 1 gram per transaction. Investment in SGBs is for minimum 5 years with low liquidity. This bond pays interest on face value of investment which is taxable but the maturity value is tax free.
GOLD FUTURES
Experienced investors may go for futures contracts which represent a large predetermined amount of gold. If the main aim to take advantage of future knowledge and profiting from rising gold prices, then futures are a good financial instrument. Given their volatile nature, futures may be unsuitable for many investors. But they remain the cheapest way to buy or sell gold when investing large sums.
CONCLUSION
There are multiple advantages and disadvantages for each type of gold investment. However their positives outperform the negatives and also surpass the benefits of holding physical gold. Though gold investment in any form will not offer regular income, it gives good liquidity and can definitely help in adjusting against inflation.
To know more about how gold can be leveraged as a strategic asset for your portfolio and how to invest, visit www.mygoldguide.in
Moneycontrol journalists were not involved in the creation of the article
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