Gold is considered not only an asset but a symbol of culture and status. While some of us prefer to purchase gold in its original form, the needs of younger investors are changing. As people are getting more tech-savvy, they prefer to invest in digital mode as it is convenient, safe and easy.
Why Buying Gold is a Good Investment Option
Some of the reasons why we should invest in physical gold or digital gold are:
- Even though gold prices fluctuate, it has always managed to maintain a stronghold in the market in the long run.
- Gold is considered a reasonably liquid asset as it can be bought and sold in the market easily because of its universal appeal.
- Because of its stable performance, in the long run, buying gold is a good choice of investment if we wish to park our funds for the long haul.
- Gold is arguably one of the most convenient investing options for those who are otherwise not well-versed in the operations of the stock market.
- Gold is unaffected by inflation which makes investing in it a good option against inflation.
How to Invest in Gold
In earlier times, investing in physical gold such as gold jewellery, gold coins, etc. was the only option. With time the manner of investing in metal has evolved into two ways: physical gold and digital gold. Physical gold refers to the traditional way of buying and selling gold, in the form of gold coins, gold bars, gold jewellery, etc.
Digital or paper gold is a comparatively newer way of investing in the metal through gold exchange-traded funds (ETFs), gold mutual funds, sovereign gold bonds, etc.
Investment in physical gold can be as simple as walking into the neighbourhood jewellery store. Banks keep stock of gold coins and bars and some jewellery retailers even sell gold online nowadays. Some popular forms of physical gold are as follows:
Gold in the form of jewellery is mostly demanded during marriages, events, etc. They can be purchased from jewellery stores or online. Both hallmarked and non-hallmarked jewellery are available to invest in.
Gold Coins/ Gold bars
Gold coins and bars are sold by jewellers, banks, non-banking financial institutes and online retailers.
Many jewellers offer a gold savings scheme to their customers which required customers to deposit a fixed amount every month for a predetermined period. At the end of the tenure, the customer has the option to purchase gold equivalent to the maturity value with the addition of a bonus.
A cost-effective and convenient manner of investing in gold is through digital mode. When we buy digital gold, every purchase is backed by physical gold and the investment is directly linked to real-time gold prices. Digital gold allows us a much more flexible style of investment at any time and from any place (with access to the internet). The minimum value for investment in digital gold is as low as Rs.10. Some of the popular digital gold investment options are as follows:
Gold exchange-traded funds (ETF)
Buying and selling of gold through gold ETFs are processed over the stock exchange, with physical gold as the underlying asset.
To invest in gold ETFs we require a DEMAT account and a trading account with a stockbroker. Gold ETF investment can be done in a lump sum amount or by investing smaller amounts at regular intervals.
Sovereign Gold Bonds (SGB)
Sovereign gold bonds (SGBs) are issued by the government of India and are usually sold at intervals of every 2-3 months at a sale window of about a week.
These are available for trading over the secondary market where already-issued bonds are re-traded. We can purchase SGBs from banks, post offices, and Stock Holding Corporation of India ltd. (SHCIL) and authorised stock exchanges and agents.
Gold Mutual Funds
Gold mutual funds are usually invested in the stocks of physical gold, mining companies, gold producing and distributing syndicates. The performance of such mutual funds is usually indirectly linked with gold prices in the economy.
Advantages of Digital Gold
Digital gold carries multiple benefits for investors. It has managed to overcome some of the demerits of physical gold, such as storage issues, high making charges, etc. while carrying all the benefits that investment in physical gold entails. Some benefits of digital gold can be listed as follows:
- Security and storage concerns: While purchasing digital gold, buyers need not worry about storage issues as with physical gold.
- Price transparency: It is comparatively easier to keep track of the performance of digital gold as most platforms offer an easy view of holdings online.
- Minimum investment: Unlike physical gold, the minimum permissible investment in digital gold is conveniently low.
- No making charge: Digital gold does not require any making charge which helps to save a good amount of money if gold is purchased in the form of an investment.
- High liquidity: Digital gold offers even higher liquidity than physical gold as we do not require to find a buyer on our own to sell. It also carries the option of converting to physical gold on demand.
- Quality concerns: When we buy digital gold we need not worry about the quality of the gold as in the case of physical gold where there is a scope for quality issues.
Over the years gold has been bought by people in India for various reasons, such as family heirlooms, adornment, status symbols, religious norms, etc. However, it has trickled up its way as a preferred choice of investment.
Gold as an investment has proved its mettle over time. It is one of the few assets that has managed to stand strong and maintain stability even during times of turbulence in the market.
While investing in gold, we must be clear about the intentions, as to whether the gold is for marriage purposes or as a pure investment. We must keep the following points in mind while investing in gold:
- Wait for the right time: If gold is being purchased for investment, we must wait till prices are low. Avoid purchasing gold during festivals and marriage season when the prices are comparatively higher.
- Prices of physical gold and digital gold may not necessarily be similar at all points in time. Digital gold may be linked to physical gold indirectly and is influenced by several other factors.
- Make sure to have a balanced portfolio to even out any losses suffered by a particular asset in the portfolio. Investment in gold should ideally be a part of the portfolio and not the whole portfolio.If we desire to invest in long-term wealth creation, digital gold is the safer bet. We have to remind ourselves that any financial decision should be based on our goals, risk preferences and desired time horizon. Sign up with Koshex to get the best guidance on digital gold options and the process to invest.
1. Are digital gold investments risk-free?
Answer: Digital gold is linked to physical gold but the performance may be different from physical gold as many other factors affect the performance of companies in the gold business. It is always advisable to build a balanced portfolio after weighing in all scenarios.
2. Do digital gold offer tax benefits?
Tax benefits of digital gold investments differ depending on the period for which we hold the asset. Holding gold for three years or less attracts short-term capital gains tax, and holding them for more than three years attracts long-term capital gains tax.