Gold performance in last few years has been impressive. Considered as a safe heaven in dire times, this instrument has been attracting investors from all segment. The volatility in equity markets too have been smoothening the investment decisions.
When it comes to investing in gold, there are many options available in India and each one is suited in different scenarios. One has to analyze in detail own requirement and pros and cons of these options to select the most viable.
Here are different options of investing in gold and when should they be considered:
1. Jewellery– Indians like to flaunt assets and hence purchasing jewellery has been a long tradition. But there are high making charges (to the tune of 10%) and other cost involved in this option. Most of the jewelers also deduct charges while buying jewelry from investors. The deduction is much steeper (approx 5-10%) if jewellery was not purchase from them. Considering all these various cost involved, purchase of jewellery is a viable option if it’s for immediate use or it has to be gifted. If the objective is to hold the asset for long term, then investing through other mode will be a good alternative as the make and design also changes with time.
2. Bars, Coin or Buiscit: Most banks sell it now and gold coins are favorite for discount in festive season. But the price of buying gold coin is higher than market rate so that institution selling it can earn profit. Also, banks only sell it and are not allowed to trade. Selling to a jeweler will demand a price and holding it for long will also not be cost effective. Buy it only from a reputed jeweler so that you can sell it when in need.
3. Gold ETF– Has emerged as the preferred investment avenue due to many reasons. Firstly, these are traded on a stock on exchange providing high liquidity to investors. Every unit of ETF is equivalent to 1 gram of gold. Secondly, investors do not have to bear high cost unlike physical gold and the underline gold held by institution is also of high purity. Thirdly, the gains are treated as long term after one year and there is no wealth tax like in physical gold. However, one need to manage a demat and trading account to invest through ETF. Also, there are expenses within the fund (.5-1%) which one need to be aware of. Overall investing through ETF is the most viable option when you want to take exposure in gold.
4. E-Gold: This option is introduced by National Spot Exchange Limited. Here one can invest in gold through stock exchange and like ETF, one unit represent one gram of gold. The major difference between e-gold and etf is that e-gold is traded up to 11.45 p.m. This gives a much higher liquidity to investors. Also it’s the only option where units can be converted to physical gold and unlike ETF, there is no difference in prices. However, the long term capital gains arise after 3 years and wealth tax is applicable. Also opening a separate account may be cumbersome for some people. A good one only if you don’t mind operating extra demat account.
5. Gold Funds: There are two categories of gold funds- Gold Fund Of Fund and Gold Funds. A FOF invest in gold ETF while gold funds invest in mining companies. Although these have easier option to invest, gold FOF have higher expenses and gold funds have higher risk associated as they invest in stocks. One need to be aware of these factors before availing this option.
Gold is considered as the best avenue for hedging inflation. But performance from last few years has change the perception to a lucrative investment avenue. One should look at his./her requirement and then decide which option suits the best. From financial planning perspective, keep the exposure within a certain limits.