Are returns on gold good enough to meet financial goals? Is the gold in your closet a good investment? Why do people buy so much gold? Confused? Don’t worry, we’ve listed everything you need to know before investing in this shiny metal:
There are different ways in which people invest in gold:
- Coins & Bars
- Savings Fund
Some of these could be seen as an investment while some not so much:
1. Say NO to Gold jewellery
Though this the most traditional and oldest way of investing in the shiny metal, people are realizing that this might not be the most ideal way of because of ‘making charges’ that vary from a minimum of 10 percent to as high as 35 percent for special and complex designs. Another risk with jewellery in the problem of theft and fraud. Jewelers can trick you by selling substandard gold at higher prices. That’s why it is advisable to buy gold jewellery only for wearing purposes and not for investing. And buy it from a reputed jeweller!
2. Say NO to Gold coins and bars
Another way of buying physical gold is through coins and bars. You can buy these coins and bars from a bank or a jeweller. Though a bank is a more reliable source, they charge a higher amount than jewellers and banks only SELL coins and bars, but they do not buy them. Apart from that, banks charge a premium for these coins which is around 5-10 per cent and at the time of selling your coins or bars to someone you will have to sell it at a discounted price so overall your returns will go down. And besides these can’t even be worn like jewelry so overall this isn’t a good option!
3. Say MAYBE to Gold Saving Funds
These are mutual funds which invest in real gold. They work the same way as other mutual funds, pooling in money from people and buying gold and then allocating units of these funds to the people. The good part, about this, is you don’t need a demat account for this and you can invest via the SIP route. But the sad part is that you pay administrative charges and expense ratio just like any other mutual funds.
2. Say YES to ETFs
Gold ETF is a type of Mutual Fund that pools money from the people and invests in gold. The units of this mutual fund are then listed on the stock exchange. You can buy these just like you’d buy stocks by opening a demat account. An ETF is a digital version of physical gold. This is a very convenient way to invest, especially if you already have a demat account. You can even start with a small amount (1 gm value), and as and when you want, you can invest from time to time. While investing in these make sure the ETF you pick is liquid, which means you can easily convert it into cash.
4. Say YES to Bonds
These are government securities issued by the RBI which are an alternative for holding physical quantities of gold. The minimum denomination is two grams, and you can go up to 500 grams. You purchase them at the prevailing rate, and after that, you can trade them in the markets or you can hold them till maturity. They will also fetch you interest at the rate of 2.75%.
Why buy gold to begin with?
Gold should be an important part of a diversified investment portfolio because of its price increases when the value of paper investments, such as stocks and bonds, decline. Although the price of the metal can be volatile in the short term, it has always maintained its value over the long term. The shiny metal is also commonly referred to as a protective hedge against inflation, deflation and currency devaluation. It is advisable to invest 10%-15% of your investment funds into gold.
So before you buy gold think twice and ask yourself. Is this for wearing, storing or investing? Depending on these you can buy the metal in the different ways listed above.