Gold Investment in India – How to Invest, Options, Benefits

Gold is one of the most preferred investments in India. High liquidity and inflation-beating capacity are its strong selling points, not to mention charm, prestige, and so on. Gold prices shoot up when the markets face turbulence. Though there are phases when markets witness a fall in gold prices, it won’t last for long, and always makes a strong comeback.

Why Should You Invest in Gold?

Safety, liquidity, and returns are the three criteria most risk-averse investors look for before investing. While gold meets the first two criteria without any hiccups, it doesn’t perform poorly at the last one either. Here is why you should invest in gold:

a. Investing in gold is worthwhile because it is an inflation-beating investment. Over time, the return on gold investment has been in line with the rate of inflation.

b. Gold has an inverse relation with equity investments. For example, if the equity markets start going down, gold would perform well. Considering gold as an investment option in your investment portfolio will be a buffer to the overall volatility of your portfolio.

How to Invest in Gold?

The ‘golden question’ here is – how does one invest in gold? Traditionally, it was by buying physical gold in the form of coins, bullions, artefacts, or jewellery. However, there are newer forms of gold investments nowadays, such as gold ETFs (exchange-traded funds) and Sovereign Gold Bonds (SGB).

Physical Gold

One can invest in physical gold by purchasing gold coins or gold bars from jewellers, banks or online stores (issued by MMTC), NBFCs etc. Gold coins are usually of standard denomination like 5 and 10 gm, while bars are of 20 gm. These have a 24 karat purity and carry a hallmark of purity in compliance with BIS standards. This is a traditional approach to investing in gold. Investors usually buy gold on auspicious days of the year thereby collecting gold periodically over time.

Sovereign Gold Bonds (SGB)

The government of India issues SGBs at different points in time. Whenever the issue is made, investors can subscribe to SGBs. Investors can invest in denominations of 1 gm and are allotted gold bond certificates on allotment. At the time of redemption, they receive the value of gold at the rate of simple average closing price for the past three business days. The investors receive a fixed predetermined rate of interest during the term of the bond.

Gold ETFs

Another way to invest in gold is through gold Exchange Traded Funds (ETFs). Units of gold ETFs are listed on the stock exchange and one can buy units from there. These are valued in line with the price of gold. Investors need to have a demat account and a trading account to be able to invest in gold ETFs.

Closing Thoughts

All investments have their own set of pros and cons. Investing in physical gold needs safety and security to preserve the same from theft. Investing in gold comes with a bunch of disadvantages; the other viable investment option that one can consider is mutual funds. They are also more tax-efficient as compared to traditional investments, and have the potential to provide much higher returns when the markets are favorable.