There is a saying, “everything that shines are not gold”. Gold has always dominated all metals for years and never lost its charm. This rare metal is always in demand due to limited supply, and humans had not yet shown their ability to convert Iron ore into gold so, it’s still in safe mode.
We can easily trace the financial turmoil that has plummeted on the world financial markets with the strange pandemic which abruptly landed on the world from nowhere. It’s highly crucial to make strategic investment decisions that should be steady and secure.
And gold is the best way to avoid such situations. They are the backstops of inflation.
Gold’s inverse relationship with real interest rates helps to accumulate wealth. When the interest rates are low, adjusted for inflation, the opportunity cost of holding gold is low.
This precious transition metal has always stood still while other paper money products like stocks and mutual funds keep trembling in the incredibly volatile market.
Now various questions pop up, whether we should buy gold in the form of jewelry that is physical gold or invest in sovereign gold bonds, gold ETFs, and gold mutual funds.
Before baffling our neurons and scratching our mind in the dark let’s learn what these terms are and how it’s going to help us.
Coming to physical gold in the form of jewelry, these are well known to everyone. Especially in a country like India, people love to spend on gold jewelry. There are certain occasions where Indians believe buying gold is auspicious, too, so they never hesitate to buy gold.
Some people buy gold in advance to check the future increase price. But investing in physical gold like jewelry is not a good idea. As many of us get emotionally attached to it and in the future, we never think to sell it. Moreover, there are making charges, there is a risk of theft when we keep it in our homes, or if we are keeping gold in the bank locker, then there we have to pay the locker charges. Another point is when we are buying physical gold, we are not buying pure gold, we are purchasing it with impurities either we are buying twenty-two carats or less. If the physical gold sits ideally at home or a locker, it will generate any income in the form of interest. And here, I will consider this investment as a sleeping investment as it does not cause any gain and enjoy its presence in the locker.
Now coming to sovereign bond, this is government-backed security whose investment unit is equal to one gram gold. The good thing is, this one-gram gold has no impurity, and the value it calculates on twenty-four-carat gold. And the price is determined according to the current price of the market that’s the advantage.
So, how one can get a return by investing in sovereign bonds?
Let me explain it by taking an example. Suppose Mr X has invested for rupees Thirty thousand today; if it increases to thirty-seven thousand in six years, you are getting seven thousand profit with an interest of 2.5%, calculated by simple interest method annually.
Let’s peep a little bit into the advantages of investing in sovereign bonds than physical bonds.
The greatest advantage is, there are no making charges, no risk of storage, and no impurities. Apart from these, there will be no default or safety risk as these are government-backed securities. One can keep Sovereign gold bonds for a loan just like physical gold. You can also keep it in the Demat account.
Just like a coin has two faces, everything has its advantages and limitations too.
What are the limitations of Sovereign gold bond investment?
1.Here, the lock-in period is five years; if someone sells the lock-in period, they have to bear the capital gain tax.
2.There are no systematic investment plans available.
Now lets look at other gold investments
Digital gold investment: The greatest benefit of spending on digital gold is investing from rupees one here. Many apps like Paytm, Google Pay, and Kuvera app can even buy from the national spot exchange. Three companies in India refine and secure gold, namely, MMTC Pamp, Safegold and Augmont.
These companies help in safe trading with a minimum storage charge.
Gold ETF: For a Gold exchange-traded fund, you need one Demat account. The best part of investing here is that you need not have pay GST. It’s a mutual fund. Just like we used to buy share the same way we can use Gold ETF. Here the price is related to the market price of the gold; hence if the gold price decreases, the gold ETF value also decreases and when it increases accordingly, the ETF value also uplifts. This is a safe way of investing. Here you can buy pure gold; there is no impurity. There is a minimum charge for the exchange.
Here you can invest in the form of SIP, and you can do it intraday.
Although all gold ETFs are not the same and do not give you identical returns. Many new investors may not know this; prima facie many investors make the mistake of assuming so. As all gold ETFs are dependent on market price, then one may think that all returns, NAV’s are nearly identical; however, the scenario is different altogether in the real world as all ETFs are not traded at uniform prices because other fund managers are allowed the liberty of not investing the 100% of the corpus in physical gold. Depending on the mutual fund charter, which is equal to the memorandum of an article of any limited company, different fund houses could decide to keep other cash balances.
You need to know the commodity market to invest in the perfect Gold ETF.
Before investing, know a few facts and do your research.
You can set some parameters like a 1-3-5 year performance report and how the returns are! To analyze how the particular ETF is doing in these years.
Investing in gold is a shining and safe hub, but one must consider investing in this safe portfolio at least ten to fifteen per cent of their total portfolio as we all know; unlike paper currency, gold also has been used as a value standard for eons and kept its calm during any economic crisis, and tends to withstand the devastations of the storm called inflation.