Investing in Gold: All You Need to Know About It

Gold is Gold, and there is no substitute for this particular metal class. Not just being used as jewellery and store of value, this yellow metal becomes the safest investment option in time of economic crisis.

So, whenever you see clouds of economic uncertainty over the world, gold becomes the safest haven for investors midst crashing market, but also generates good returns. In 2008, global recession, when world markets had crashed over 50 per cent, investments in gold has offered a whopping 25.5 per cent return, showing its true worth.

Why You Should Own or Invest in Gold?

Gold has all the properties (Safe, High liquidity and Returns) that an investor looks for before investing. For centuries, gold has managed to maintain or hold its value and its attraction. Gold act as the hedge against economic crisis, inflation, deflation and geopolitical uncertainty.

If we check the last 20 years graph of gold, we can see its performance. In fact, since the start of the 21st century, the return from gold stands at whopping 700 per cent.

source: goldprice.org

One of the features of gold is that its prices are negatively correlated to the stock market, means, gold prices struggle to move higher, when markets are at its bullish phase. But, history has also shown that gold prices tend to rise with the cost of living, thus beating inflation. For the stated reason only, gold constitutes a major part of reserves for central banks around the world.

Investing in Gold

Investing in gold is very simple when compared to other asset class such as equity and mutual funds. You can keep its physical form which is available very easily with jeweller shops and banks with minimum documentation. But, this form is very inconvenient to investors as the cost of storage and safety issues arise.

Purchasing physical gold attracts a GST of 3 per cent plus making charge.

Nowadays, with the advent of fintech, platforms like PayTM also allows you to purchase gold and keep it in their digital vault. At any point, you can either transfer the gold value to your bank account or take delivery.

Other forms of Investing are as follows:

Gold ETF

Gold ETFs are equivalent to the value gold in physical form and the only difference is that you hold it Demat form. This removes the hassles of storing it securely and any risk of theft. It is offered by asset management companies and SIPs are not allowed with Gold ETFs.

Some example of Gold ETFs, ICICI Pru Gold ETF, HDFC Gold ETF, UTI Gold ETF etc.

Gold Saving Plans

Gold saving plans are simply an extension of Gold ETFs, in which it invests in Gold ETFs and investors get the advantage of investing through SIP, as per the need. These funds are operated and managed by mutual fund houses.

Example, Reliance Gold Saving Plan, SBI Gold Fund, Kotak Regular Gold Fund.

Sovereign Gold Bond (SGB)

This bond scheme is backed by Govt. of India and offers an attractive interest payment of 2.5 per cent. It is equivalent to holding physical gold and eliminates risk & cost of storage. The tenure of the bond is 8 years with an option to exit in the 5th year. If the bond papers are held till maturity, the gains are exempt from capital gain tax.

Sovereign Gold Bonds are available with almost all public and private sector banks.

Gold Saving Schemes

This is a particular scheme offered by many reputed jewellers. In this scheme, you contribute a monthly fixed amount towards the plan, and at the end of the 12th month, the 13th instalment will be contributed by the jeweller. This is considered as the smart way to invest and buy in gold.

Bottom Line

Wealth creation with gold is very difficult but including it in your portfolio provides diversification. Further, owning gold in any form gives a sense of satisfaction as it is strongly linked to our Indian culture.

If you are an aggressive investor and want to include gold in your portfolio, don’t hold more than 10 per cent of the total portfolio value, as it will drag your portfolio returns.

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