Despite the gold market plunging briefly at the start of the year with the imposed lockdown, the demand for gold has seen an upswing during the festive season. With Dhanteras and Diwali round the corner, the demand for gold is expected to pick up, both for its value in terms of investment and auspiciousness. Many economists and surveys suggest that it is the best buy in these trying times. Let us explore the various gold instruments which you can consider this festive season.
Sovereign Gold Bonds (SGB): Investing in SGB is one of the most recommended investments in Gold. The Government of India issues SGBs at different points and investors can even invest in 1 gm of denominations and units allotted in the form of gold bond certificates.
Firstly, SBG is Demat stock and highly safe, and being a sovereign bond, its purity is guaranteed. Secondly, a coupon rate of 2.5 per cent per annum on the value of gold is given by the government. SGB also gives long term capital gain after three years and tax exemption if redeemed on maturity. It has the minimum storage cost and can provide the safest investment with low risk, convenience, capital appreciation, and hedge against inflation.
Physical gold: This is one of the most traditional ideas of investing in gold in India and has a high storage cost attached to it. One should look at investing in physical gold by purchasing gold coins or gold bars from jewellers, banks, or online stores (issued by MMTC), NBFCs. The coins are usually of standard weight and easily available in 5 and 10 gm, while bars are of 20, 50, and 100 gm. The bars and coins are available in 24 carat only. While buying, the investor needs to ensure that it should carry a hallmark of purity in compliance with BIS standards. One should also note that with physical gold there is a risk of theft.
Gold ETFs: Another recommended investment in gold is Gold ETFs. One can buy these units which are listed on the stock exchange. The investor has to carefully choose the fund with the least commission and past track record of the fund. These units are valued in line with the price of gold and can be traded so the investors need to have a Demat account and a trading account to be able to invest. He has to pay the broker's charges and the Total Expense Ratio (TER). Hence, one has to keep in mind that Gold ETFs could give negative returns due to the management fee. However, talking about their brighter side, they are equally safe with an assured quality like the SGBs.
The biggest mistake of Indian households is owning physical gold in the form of jewellery. With the changing times, investors have to bring in a change in their thought process for wealth creation. An investor must also keep in mind that every form of gold investment also has its set of pros and cons, it is indispensable to go through the documents and guidelines carefully before investing, for the best returns.
The author is the Managing Director, Findoc Group