Gold investment is a traditional form of investment and is considered to be one of the lowest-risk investment options. For ages, the yellow metal has served as a hedge against inflation. In India, gold is also one of the most exported metals. Wealth planners often suggest that this precious metal should be a part of an investor’s portfolio. In the long-term perspective, gold can yield a better return than FDs and RDs. There are multiple options available to invest in gold. Apart from buying physical gold which is still popular in India, investors have options like Sovereign Gold Bonds and exchange-traded funds (ETFs) or mutual funds.
Here are five different ways to invest in non-physical gold:
Some banks, fintech platforms, and major jewelry companies allow investors to buy digital gold. Investing in digital gold is as good as investing in physical gold. It allows the investors to buy an amount of gold online but eliminates the need to physically store it. The gold purchased as a digital commodity will be stored in insured vaults by the seller on behalf of the customer.
The only disadvantage of investing in gold is that it does not come under the regulations of the Securities and Exchange Board of India (SEBI).
Investing in gold ETFs is the same as investing in equities on stock exchanges. But unlike physical gold, whose price varies across states due to local taxes, gold ETFs reflect the current gold prices. Investors can invest in gold ETFs through their Demat account. Investing in gold ETFs is equivalent to investing in gold of 99.5 per cent purity.
The majority of your investment goes into physical gold and the remainder into debt Instruments.
Sovereign gold bonds or SGBs are government securities denominated in grams of gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity. The Bond is issued by Reserve Bank on behalf of the Government of India. Introduced in 2015, these bonds have a term of eight years with a lock-in period of five years. However, investors may choose to sell the bond even before maturity. Investors can also the bonds anytime on stock exchanges.
Also known as gold-saving funds, these are mutual funds that invest in gold ETFs. But unlike ETF, investors do not need a Demat account to be able to invest in gold fund of funds. In gold savings funds, an investor invests the majority of its corpus (90%-100%) in Gold ETFs (of the same sister company), a small portion might also be in money market instruments or some short-term debt products.
Gold futures and options derivates contracts are available on Multi Commodity Exchange (MCX). There are two classes of gold derivatives commonly dealt with, forwards and futures as well as options in both categories. The forward contracts are bilateral bespoke agreements, while future contracts are standardised and traded on registered exchanges.