The luster of gold is too good to resist whether to wear it or invest in it. Research shows that over 16,000 tons of gold is there in Indian households predominantly in the form of jewellery. Read this complete article to find out how to invest in gold through options like jewellery, coins, bullion, ETF, Mutual funds, etc.
Gold is the preferred type of investment of Indians because of the potential price increase and as a hedge against inflation. Statistics have revealed that when inflation increased by 10% gold prices have increased by 30%
Why Invest in Gold?
Gold has been the most trusted investment vehicle through generations. The current gold price is expected to go up further as gold production worldwide is far below the demand. Gold is the only medium of exchange that is completely free of credit risk.
In the past two decades investments in gold with an average return of 7% has proved to be a dependable hedge against inflation. If the same trend persists, which is most likely, you can expect a return of anything between 6 to 9% as a long term return.
Gold ETFs have been good investment options ever since the global economic crisis started in mid 2008.
So, How to Invest in Gold?
Akash wants to plan in advance for his daughter’s marriage and wants to invest Rs 1 lakh in gold. In the good old days, his only option would have been to buy gold jewellery, but now he has numerous options. Let’s explore the top 5 options available to him.
1. Jewellery:
Owning gold jewellery gives the advantage of owning gold physically and also using it for fashion as well as prestige. But the disadvantage of theft cannot be ignored. There may be loss of value due to impurity, making charges and exchange rates if you need to sell them.
You can buy jewelry at a local jewelry store or from a retail chain such as Tanishq.
2. Gold Bullion Bars:
The oldest form of wealth preservation is to hold gold bullion bars. These bars can be bought in denominations of 10 Grams, 20 grams, etc. from authorized jewelers or banks. It offers the satisfaction of holding the gold and ease of purchase online. But you must safeguard with a safe deposit vault and insurance which costs money.
Gold bars have higher purity than coins and jewelry and have a higher value in the market.
3. Gold Coins:
The gold coins are easy to store. They are also worth slightly more than the actual price of gold. They are available in sizes of 1/20th of an ounce to 1 ounce. In India Gold coins are available in various denominations (1gm, 2gm, 5gm, 10gm, etc) in banks, post offices, jewelery stores, etc. Buying at banks may be expensive due to the mark up, but these are more accessible and affordable for retail investors compared to gold bars.
In addition Gold coins have numismatic value as a collectors’ item and thus numismatic coins are exempt from confiscation. But the disadvantages are you incur costs for storage, insurance and there is no interest yield.
4. Gold Certificates/Deposit Schemes:
The gold certificates are proof in the form of a certificate as proof of your holding gold. The scheme allows individuals and institutions to deposit their gold with the bank for a predetermined period and receive a `Gold Certificate’ or passbook as proof of deposit. The bank will pay interest of 3-4 per cent per annum (please verify prevailing rates) on the deposit, depending on the duration.
They are safe in the sense that they allow you to enjoy ownership of gold bullion providing you the safety and convenience of storage by a bank. The other advantage is that you do not pay for storage and insurance while you own the gold.
However, there is a minimum quantity (e.g. 200 gms, 500 gms, etc.) that has to be deposited to avail this facility.
5. Gold Exchange Traded Funds (ETF):
This is a mutual fund that invests the money collected from the investors on gold bullion. Your holdings are in units, listed in the stock exchange. This is the safest way to invest in gold. By buying the ETF you are buying shares in a fund that is based on the market price of gold. Each unit generally represents one gram of gold. Gold ETF can be bought and sold with the ease of a click of a mouse.
You can purchase Gold ETFs if you have a trading account with a brokerage house (Indiainfoline, Kotak, Sharekhan, etc.). Please read about the best gold ETF in India
Moreover, gold in the paper form does not attract wealth tax. Large investors have the option of converting the paper holdings into physical gold. The fees for storage, insurance and other essentials are included in the cost. This method provides all the benefits of buying and holding gold while there are too many pitfalls and risks involved in trading gold in physical form, like undervaluation, wastage, and other added charges and safety concerns when transporting. Accumulated in small quantities over time is a good way of earning good returns for the small investor.
6. Gold Mutual Fund:
Please read Gold ETF vs Gold Mutual Fund to find out more about gold mutual funds
Summary
* You may face potential disadvantages such as low liquidity, higher expense ratio if you chose the wrong fund. But the risks or losses even in case of a wrong choice may be limited.
Conclusion
We now know the advantage of taking an exposure to Gold, however, remember that it is going to be one part of your portfolio which is important to provide you the ability to tide over inflation as well as financial and economic uncertainties.
Like any other asset class gold has its own risk and returns that investors need to be aware of. If we look at the past 15-20 years record, it is seen that Gold is a good hedge against inflation.
In India, over the last one year Gold ETFs have been giving approximately 26% return p.a., while equities (Nifty) provided a return of just 4% (Value Research Online, 22 March 2011). This is not to prove one is better than the other, but to remind you that equities can outperform gold in future, so having a mix of both is recommended.
You have only known equity and debt all these years, and gold was just for ornamental purposes. But now time has come for you to consider the yellow metal as an asset class that is capable of adding that extra shine to your portfolio. More reading at Gold as an Investment
Article by Sridhar
Sridhar has written 93 articles.
Sridhar is a financial analyst and his work experience spans areas of financial analysis, modeling, valuation and research on companies, specific sectors, etc. Sridhar is an MBA graduate with Finance major from Maharishi Institute of Management..
48 Comments
{ read them below or add one }
I think ETF’s is the best way to invest in Gold. Hassle Free Investing with no tension of physical safetty of the asset.
Gold Investment Dividend Payout 10% Every Month.
Gold in the world as more believable investment. Most of the State government department buying the Gold as reliable asset.
Hi Sir
I am agreeing with your view that the Gold etfs are better options in the investment in Gold. Another mode of investment in Gold is e-Gold which is another better investment in Gold. Transaction costs are less and no storage charges, no impact costs, no tracking error etc.. Gold etf and e-Gold are the two best investment in Gold
Sir ,
I have not understood the Cons of buying Gold ETF..Can you put some more light on it?
I want to invest Rs. 4 Lakh in Gold for 1 year only..after that.. I need that money for marriage…Hence what would be the suitable option ?
ETF or buying physical gold?
The only case of a disadvantage with Gold ETF is the fact that you will not get physical gold by investing or accumulating. You only get gold units which are electronic or in paper form (actual gold will be maintained by the fund or custodian in their warehouse). On sale or redemption you can only receive cash.
If you are looking at a short term like one year I would only recommend a bank fixed deposit which will protect your principal and interest. I will not recommend Gold for this situation, but if you still want to try you can invest gradually in Gold ETF assuming you have a demat/trading account. Gold prices are highly volatile and can be as risky as equities.
Hi! I want to invest about 4 lakhs on Gold Shares, i want to buy/sell trading on day to day basis as i have an DP/Trading Account with Sharekhan, and the Bank it was linked is HDFC bank.
Please suggest me on the above regard.
i have 200 grms gold.how i can invest it.plz tell proper way.
I understood various forms in which I can invest in gold but still didn’t which would be the best one for me..as I totally lack trading knowledge.
Also I want to ask that if investment is made through ETFs then they can be held up for only 3 months then either a delivery has to taken or else one can trade it.
Hi Monika,
I’ve tried to be neutral in my article because the options are available to choose from as per your requirement. If you are investing in gold as a pure financial investment (like shares, FD, etc.) then Gold ETF option is the best. If you want to accumulate some gold for marriage, ornaments for festive season, gifting, etc then jewelry may be suited.
People have different objectives in mind depending on their need.
I would say Gold ETF is the best if you are looking at investment angle.
Note that the process of investing in Gold ETF is similar to investing in stocks. You can either trade or invest just like shares. You can also hold for longer term (not up to 3 months). Please visit http://www.nsegold.com/ for more details.
One word of caution though….dont buy large quantity of Gold ETFs in one shot. Instead accumulate gradually when prices dip. Have a nice day.
Hi Sridhar,
Could you please tell about taxation part for all of the above options given by you.
I’m not a tax expert so I suggest you consult a chartered accountant or tax consultant. In case of Gold ETF there is no wealth tax. For more details on tax on Gold ETF investment refer the scheme/offer document of the respective fund.
Hi Sridhar
thank you for such a nice article. I want to invest in Gold-ETF. Can you suggest which one is the best. Many companies provide to invest in Gold.
Hi Manish,
Thanks for your appreciation and comments.
You can read my article on best gold ETFs at
http://www.wisdomtimes.com/best-gold-etf-in-india/
To answer your question in brief, all gold ETFs invest in the same asset and have similar price and returns (marginal difference). However, you should choose the one which has good trading volumes so that its easier to sell or exit later.
The best in my personal view is Gold Bees, but a few other could be better or equivalent to it in performance. The returns are linked to international gold prices so unlike stocks the return pattern will be similar across different ETFs.
You can also check out http://www.valueresearchonline.com if you want to compare different funds or want to check historical performance.
Hope this answers your question well.
hi,
I read all type of investment process in Gold, but I want to know that long term investment in gold is beneficial or not ?
thanks I learnt a lot from your advice will be handy in future
hi
i am a student pursuing b tech final year.i want to invest in gold.what should i do?with whom i should consult?i have had not so much knowledge about that.pls help me
Hi Amartya,
To know about gold in general you can read current news on Economic Times, Business Standard, etc. You also get news and gold rates on TV. You need not be an expert, but you need to have some basic knowledge.
To invest in Gold ETF you need an online trading/demat account. You can consult with leading brokers/online trading service providers like Kotak, ICICI Direct, Indiainfoline, etc. I’m not sure if there are people who provide exclusive advice for gold, however, you have analysts and experts writing columns on paper or speaking on TV.
seems now equity market rebound with speed, it would be a prudent idea to put gold & silver investment on back burner and look for equity.
I want to buy gold for around 3 thousand every month.Please let me know if this is possible through any safe manner.I dont wanbt to buy jewellery as its price gets down…suggest me some good manner to invest if possible
Hi Megha,
I would recommend Gold ETF for you. You can probably buy one ETF (1gm) every month given that current prices are around Rs.2600-2700 per gram. Its a good practice to buy every month, but its not necessary that you have to buy every month. Some people are comfortable buying when price dips. My vote goes for gold ETF because coins and bars also have some drawbacks.
Hi Megha !! I think in ur position, you should be rather going for physical gold in 1 gm denominations every month rather than going through Demat and ETFs. ETF is not difficult but, its also not safe compared to the physical gold. Yes security is a prob in case of gold coins, but then u can always keep them in lockers. The price will be higher than ETFs, but the chances of forgery as quite possible in ETFs (Paper gold) are minimal. One must understand the basic concept..There is only a limited amount of gold on this earth with very less production/mining and most of it being circulated from one person to another. So when everyone rushes towards ETFs, the people holding physical gold bullion and offering us ETFs cannot refuse to us at the same time cannot fulfill all our requirements. So, they either go bankrupt or make others bankrupt and run away. Legally, no law can make the offender repay his loans if he goes bankrupt. He will go to jail, but that does’nt return our money, does it? I would rather buy 1gm gold coin every month so that its with me physically and when needed, i can convert it into jewellery easily. On the other hand, even if the ETFs give us more profit in terms of cash to buy gold…eventually when needed we have to buy all physical gold at the THEN market price..! So the resultant cost averaging factor is nullified almost. e.g. if i buy 1 gm gold at Rs 3000 today and then 2995 next month and 3005 the month after, the average for 3 months is 3000/gm. In ETFs, this average might be lower lets say 2850/gm, but then the gold is not in our hands. 20 yrs down the line, I shall have 240 gm physical gold on one hand that i can exchange for jewellery Vs the cash that i get and buy jewellery. Now the catch is, when u exchange gold for jewellery, most reputed jewellers charge lesser making charges than when u buy jwellery paying cash !! I bet you did’nt know this fact. Rest is ur choice !
wow… quite well explained Mahi…
Thanks Manisha ! Hope my little advice was helpful
Do keep in touch in case you would like to clarify anything further about investments.
A very well comparison between various modes of investment in gold. In India, gold never loses its sheen and people are always game for investing in gold, but unfortunately unaware of how to go about it. Most of them end up buying jewellery, which in my personal opinion should not be the ideal way of investing in gold;gold jewellery must be treated as consumption asset and not as an investment asset. Better ways of investing in gold are present, like Gold ETFs, Gold Saving Funds, E gold etc.which involve low costs as well as many other benefits. Depending on one’s own preference, one can select the best mode for themselves. This article helps investors in distinguishing the features of each and thereby helps in taking correct investment decisions.
Thanks for your feedback and insights.
Hi,
I’m working as a software engg, just started my career. I want to save some money for my sisters marriage. So please tell me how to go about that. Say i will need good amount in hand in five years. So please give me some suggestion. Is it good to invest in gold or land or as fd. Which is better and how to proceed.
regards
Nagarrajan
You can use a combination of FD, gold, etc. However, I feel land is risky or speculative. Gold ETF can be considered as a pure financial investment, so you wont get physical gold against your investment, but you can sell and redeem funds in future (after 5 years). You can invest your savings gradually depending on your earnings. Using a mix of assets is a good idea instead of sticking to just one investment.
Gold ETF is definitely the best option among the three (ETFs, saving funds and egold). Gold savings fund dont have any special advantage compared to ETF since they ultimately invest in ETF only. There are additional charges because its a Fund of Fund.
One charge for gold MF and one for Gold ETF, which is not worthwhile.
E-Gold is good and has some advantages over ETF but it requires another separate account which can involve additional costs and efforts.
For people who have a demat account buying Gold ETF is the best option and its as simple as buying stocks.
I am surprised most of the people think Gold ETF and e-Gold are safe investments. In USA where i live, it is very common knowledge among the gold Bugs and investors that ETFs are a fraud in the sense they their can never be any backing Gold in the accounts that they claim to have. Yes they may have some Gold, but they can never match the amount of the Rupees to the content of Gold. With all the financial frauds that are happenning and knowing that big banks actually hate Gold as it will eat into their losses, their is a big financial fraud looming on all these paper contracts. Moreover Gold is not an investment, It is the Money. Period. Not the Rupee or Dollar or any fiat currency. You will be better served if you just buy Physical, don;t tell to any one and keep it safely hidden somewhere. This is not for people who want to make some short term profits in trading Gold. Gold is the only thing that maintains the purchasing power even after many years, so it should be viewed as a store of value rather than an investment.
Having said that, it is difficult to convince people that ETFs are fraud. So you can make your own decision. I, for any one, will never touch any of them. Only physical is the way to go and that too in your possession and not in lockers. The Govt can change laws overnight and take away even that physical so best to have it in your possession.
But i have a question, I myself wanted to buy some physical gold in India, but latest i heard is that the govt should be notified if the amount crosses a limit and i think it is 5lakh? Is it true? Can any one confirm if the limits are correct? I am talking only about physical bullion. This is one way for Govt to keep tab on who buys what so that their lockers/houses can be raided by corrupt govt when it comes, while doing nothing on the $500B worth of stash of their ilk (corrupt politicans and bureaucrats) in foreign accounts.
i still feel purchasing a gold coin is a better option as it can be liquidated any time at any jwellery shop, is a great gifting option. These coins can be purchased from any jwellery or bank’s. I personally prefer a bank as they provide a certificate of authenticity along with it. Banks are offering great innovations these days for e.g. ICICI Bank offers the convenience of purchasing gold coins online. all you have to do is select the gold coin variant and the quantity and pay online. delivery of these coins can be taken from the designated bank branch. its great when you do not have the time to visit the branch and wait for buying a coin.
Gold does not return any yields. It justs protects us from the inflation. Gold never losses it’s purchasing power whereas Rupee has been losing it’s purchading power since it’s birth. Gold prices because the rupee losses it’s purchasing power
I am planning to invest 3 lakh on gold , please suggest me which is the better method ?
I’m assuming that you have already made other investments in equity, debt, property, etc. As a thumb rule you have to make sure that gold is only a part of the portfolio and its share in the portfolio should not exceed 25%.
So assuming that this Rs.3 lakh is 25% of your investment basket and given that you are looking at gold only for investment (not for wedding or ornamental uses) I would recommend gold ETFs.
You can pick from leading gold ETFs such as Goldman Sachs Gold ETF, Reliance Gold ETF, etc.
If you want to invest in gold bars then you need to get conversant with the procedures like storage, insurance and related costs or consult jewelers or bullion market experts. ETFs are hassle free and dont involve physical handling. So my vote goes for Gold ETFs. In case of ETFs you can invest gradually by buying a few grams instead of committing all your investment at one go, so this should be the best option for you.
Very nice article and I was not aware of Gold bars investment. As the purity is high and returns are high, it attracts me to do a bit of research and find out who sells them. Are you aware of any sellers in India?
Hi Gopinath,
As mentioned above, in case of Gold bars you have to invest in a min. quantity of 10 gm. At current rates roughly Rs.2850/gm you need Rs.28.5k to invest in 10gms. So its still a huge amount for middle class people to invest. In addition to this you also have storage and other costs. Unlike Gold ETF you have to deal with the physical commodity.
I think jewelers sell bars, and probably some banks might sell too. In case someone has more information on this please add your comments.
Apart from jewelers and few rich investors, I’m not sure who will buy bars. For the layman Gold ETF is the most optimal option.
I think, the way to invest in gold coins is the better than share markets. I will prefer to invest in gold coins
hi!i want to invest my money in gold how can i invest my money in gold
Hi Ajit,
There are several options to invest in gold as mentioned in the article. So the choice depends on your requirement. However, if you are looking at gold as a pure financial investment (like stocks), then the best option is Gold ETF. In case you are looking at other objectives like ornamental use (for self use or for marriages) then you can look at various physical forms. In case of investment (Gold ETF) if you are not familiar, just pick a few gold ETFs and observe them for a few weeks to get an idea of their prices, volumes, etc.
Hi Shridhar,
Thanks a lot for valuable information. My hat’s off to Mahi, the way he explained. I am looking for short term investment even I have DMAT account of Bonanza. If you can help me to find the reputed Gold ETF partners through which I can invest monthly basis with higher ROI.
Hi Abhinav,
You can choose a gold ETF which is highly liquid – which means traded frequently and has higher volumes. Try to add 4-5 gold ETFs to your market watch or watch list in your trading/demat account and watch them for a week or two. This will give you an idea of which ones are frequently traded.
You can also look at the ETF page on NSE website to see the trading volumes. Some of the established names like GS Gold Bees, Goldshare, Reliance gold, etc can be considered. I am not recommending any specific name to avoid any bias – you make a choice. In terms of returns most of them have similar returns with very little variance. However avoid ETF which are new or those with less than a 3 year tenure.
Ofcourse physical gold options such as jewelry, coins, bars, etc can be considered by they are not suitable for all lay investors, who are looking at gold as a pure investment option. The cost, expenses and other considerations make Gold ETF from a pure investment point of view.
Pls…give me detailed information to make profit out of jwellery without selling it. I have jwellery of worth 10-15 lacks rupees. i am interested to invest my jwelleries for long term and make money. please help me out with your best ways…….
I have a query regarding investment in Gold bullion/coin.
for eg. Gold price today is Rs. 31500 per 10 gm.
but If I go to some bank and buy 10 gm of gold coin/bullion it will cost me from 33500-35000 including taxes/VAT.
If price of Gold increases by 10% in 1 year. price of gold for 10 gm will be 31500+3150 = 34650 after 1 year.
As banks do not buy back Gold coins/bullion bars. I have to sell in local market only. and in local market I will get around Rs. 34650 after one year for 33500 (min) I have invested for one year. and my profit is 34650-33500= Rs. 1150 (Around 3% only). but I can earn 9% on FD.
by this way to cross returns of FD, gold has to increase more than 16% in one year and that expectation is too much.
So why I should invest in Gold coin/bars. Or is there any other better way to invest in physical Gold. (I am not interested in Gold ETF). Please guide.
Hi Mr.Arora,
Thanks for sharing your query.
Your analysis is right. Let me answer you from different angles.
- You are paying cost/charges to bank initially (33500-31500 actual price). This is eroding your returns.
- Similarly after one year when you sell to a jeweler he is not going to buy at the market value of Rs.34,650. He will also take a 5-10% cut for making charges and margin. So your selling price will also get reduced to Rs.31,00o 0dd (roughly)
- This is the reason gold gives poor returns due to charges and fees on buying and selling
- HOwever, if you look at the market price alone it appears to give 10% gain (3150 gain over Rs.31500) but practically all these costs add up.
- In addition to above costs there could be other charges for locker, insurance, etc which will further diminish your returns.
Gold bars or coins are relatively better than jewelry if you are looking from investment point of view.
This is one of the reasons why physical gold investment is not suited for small investors. Physical gold returns may appear better than Gold ETF, but the costs and charges make it less attractive in practical terms.
Thanks to everyone for your participation and interest in this article. Its nice to see many questions, comments and compliments from visitors.
Hello Team,
I have limited fund of Rs. 3 Lakhs & Now i want to invest this money n want good monthly income by saving my principle amount as well. Please suggest me as I am beginner in this line. Is there any good option for me to invest ???? Please Revert me ASAP
hai sridar,
my age is 25, and i completed my degree only, i am living in a small town
i am helping my father in truck business,
i don’t have any basic knowledge of stocks.
in 2009 i bought 1 bsct of gold (100 gm) in whole sale gold point in my town.
the rate is 1.86 and i sold it after 3 to 4 months gap 2.20.so i got huge profit
whole saller took 2000 rs for exchange of gold and given money to me..
i am interested in gold due to huge profit but suitiation not gone correct
i planned many business but my father stopped me in my planning stage
so again i am much interested in buying gold,
( 2000 rs giving to seller is not a matter when huge profits gets,
i should wait until the profit percentage increases ,
seller giving pure gold or not is important while buying)
so sir can u help me which is the best way to do and i am not having any knowledge on market
so plz suggest me
If I purchase gold coin of Rs 100000-/- today, and sell it next day ,what is the amount
I shall get back.(ie difference of selling &purchasing rate)
48 Comments
{ read them below or add one }