Gold Coins, Bars, and Jewelry
The allure of owning gold coins and bars as an asset lies in the ease and flexibility of purchase and liquidity at unrestricted amounts and frequencies.
Gold jewelry has a cultural and ceremonial significance in the country. It is a cherished heirloom that is handed-down through generations to keep the family legacy alive. It is also useful as an auspicious token to present someone on a religious or festive occasion.
Given the metal’s popularity, the Government of India has recently launched the Indian Gold Coin – the only gold coin in India bearing a Bureau of International Standards (BIS) hallmark. It is of 24-karat purity and 999 fineness, replete with in-built anti-counterfeit features and tamperproof packaging for safety and easy recycling. This coin is a valuable addition to your investment portfolio. Investors can purchase this gold coin at designated and recognized MMTC outlets and from registered bank branches, in denominations of 5, 10 or 20 grams.
Gold Exchange Traded Funds
Investing in units of a Gold Exchange Traded Fund (ETF) is just like investing in a company’s shares in the equity market. Just as the latter represents an ownership stake in the underlying company, each unit of the ETF owned represents 0.5 to 1 gram of gold. The price of the unit is linked to the prices of physical Gold and can vary depending on market conditions and the demand and supply of gold.
A few key reasons why you should consider investing in ETFs are:
- Transparent and regulated pricing
- Easy storage since you hold the gold in dematerialized form
- Easy liquidity; Investors can sell ETFs on stock exchanges
- Quality assurance since the law requires the underlying gold to be of 99.5% fineness or higher
- Can be purchased in units as tiny as 0.5 grams, making it ideal even for small investments
Gold Mutual Funds
A Gold mutual fund is a collective investment scheme where the mutual fund company will invest money collected from a large number of investors into Gold ETFs. Why should you buy units of gold funds when you can invest directly in ETFs? Just as an equity-related mutual fund is safer and easier as compared to buying shares directly, a gold mutual fund could be a better option for those who prefer a professional fund manager to actively manage their gold investment portfolio.
Some other things that you need to know about investing in Gold mutual funds are:
- You can buy gold MFs even if you don’t have a Demat account
- You may opt for a SIP to ensure regular and hassle-free gold investment
- In case of gold MF, you stand to benefit from the expertise of a professional manager which reduces the risk of less liquidity
Sovereign Gold Bonds
A sovereign gold bond (SGB) is a debt instrument issued by the Government of India at the prevailing price of gold. These bonds have a maturity period of 8 years, with exit option from the 5th year. Investors will recieve a fixed rate of interest. The ROI is 2.75% per annum (payable every 6 months) on the initial value of investment.
Redemption is at the market price of gold prevailing at that time, thus the opportunity of gains from are there. Say, you bought 10 units of SGB, when gold’s market price was 3,000 per gram, for 30,000. At the time of redemption, gold prices have appreciated to 9,000 per gram. So, you sell for 90,000, making a total profit of 60,000.
While the minimum tenure makes it a mid-term investment option, here’s what you need to weigh it against:
- As SGB has Government of India’s back, so it presents an opportunity for risk-free return
- It is in demat or physical paper form. Since gold isn’t held in its physical form, there is no purity or safety risk. Also there is no cost of storage to the investor
- The fixed rate of Interest can lessen the impact of losses on other gold investments due to fall in prices
- SGB is listed on the exchanges. So, if the volumes are good investors can exit even before 5 years
- Gold bonds are also useful as collateral for loans from financial Institutions.