The most precious yellow metal which has an emotional and the financial value attached to it in a country like India is “Gold”. It can either be use as an ornament or as an investment product. Generally, the people over here are emotionally attached to physical gold in the form of jewellery, coins etc which serve both the above purpose.
Occasions like Diwali, Dhanteras and Makar-sakranti believes to be an auspicious day for buying the gold, there is heavy rush for gold during these festivals where people are buying it mostly in a physical form.
Now from an Investment point of view the trend is changing from physical gold to an electronic form, we have listed down the various options available for investing in gold in an Indian market:
The most common, important and favorable form of investing in gold by the Indian households as its gives the greater psychological satisfaction to the owner, and it is one of the traditional way of investing in gold. We are buying it in form of ornaments for our own use, for investment and for giving it as a gift in occasions like marriage, birth of a child etc. However this option comes up with the high making charges and cannot really be counted as investment because we may not always willing to sell it when the price goes up.
Bar and Coins
Another way of holding the physical gold is in the form of “Bars and Coin”; these are available in various denominations ranging from .5 grams to 50 grams. These are 24 carat pure gold and comes up with an international assay certification which indicates its purity and can be purchased from jeweller as well as from several banks like SBI, ICICI, HDFC, Yes etc.
A new way of investing in Gold is in the form of “Gold ETF” where an investor can purchase and sell the Gold in stock market. Like a trading is done in share through stock market we can trade in gold also. Each unit is equivalent to 1 gm of gold with purity of 99.5% and can be traded on exchanges.
To invest in an ETF, you will have to open a broking and demat account but if you don’t have the demat account you can still invest in a lump sum or SIP through Gold “FoF” which invests in Gold ETF. However you have to shell out a high expense ratio or brokerage if you are choosing the “FoF” route instead of investing directly in Gold ETF but investing through FoF will make sense when you don’t have a time to look frequently in to stock exchange and not been able to time the market to maximise your earning.
If you are intended to buy the gold only to keep it in a locker the better way is to invest in it through gold ETF as you are not supposed to shell out any making charges, no storage issue as it is stored in a dematerialized form therefore no risk of theft, liquidity is there as and when you feel you can sell it through an exchange and above all, it is safer than physical gold.
In terms of tax benefit you need to hold it for minimum 1 year to enjoy the lower capital gain tax through indexation while in case of physical gold you need to hold it for a period of 3 year.
Another way of investing in Gold is in the form of “E-gold”, which is offered by the National Stock Exchange Ltd and Bullion India. Both these online platform allow an investor to buy, hold gold in a demat form and redeem the units in physical gold. Option of physical delivery makes it a more lucrative gold investment option among the small investor as they can convert as small as 8 gm of gold in a physical form while in Gold ETF an option is there for a physical delivery but only for a denomination over a KG.
For a typical Indian investor, E-gold bridges the gap between using it for investment and the traditional, auspicious reason of buying it.
An option is available in the form of trading with MCX and NCDEX where buyers and seller agrees to buy or sell a certain specified quantity of gold at the price determined today on a specified date in future.
An ideal option for an investor who has a high risk appetite as it offer the significant upside in the invested value but at the same time, there is an equal chance of incurring heavy losses also.
It is recommended by the experts that we should have 5% to 15% of our total portfolio in Gold as it not only diversify your portfolio but also mitigates the risk.
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