DIVERSITY AND IMPORTANCE OF GOLD

Gold is being used for ornaments, investments, jewelry, medicine, and Industrial purposes. Of the total gold mined today, 55.43% of gold is used for manufacturing jewelry, 25.02% in Investment, 11.33% in banks, and 8.21% in industries. Since it has valuable properties such as ductility, corrosion-free, good conductivity and its glossy yellow color industries are using gold extensively. Also, Gold can be made into thin wires easily. Medicinal uses of gold comprise Dentistry, rheumatoid arthritis, and other medicinal compounds.

6 SIMPLE WAYS OF INVESTING IN GOLD

Let’s get straight to the point. Investing in gold can be made Physical or on Paper. Simply put, gold investment can be made either offline or online. Let’s discuss the possible methods and which suits you better of all.

1.PHYSICAL GOLD

Physical gold is nothing but the traditional way of investing in gold. This includes Gold coins, gold bars, Jewelry, etc. Physical gold is available at two purity levels namely 22K and 24K for purchase (K- carat- a unit to measure the purity of gold). 24K signifies 99.9% purity of gold whereas 22K signifies 91.67% of Gold and the remaining 8.33% comprises copper, zinc, nickel, and silver. Jewelry makers use 22K because the remaining metal added would harder texture and durability when compared to the pure gold which is 24K. Since it has 91.6% of purity it is called 916 gold in jewelry shops.

1. Where to buy? As everyone knows, it can be purchased via offline stores such as licensed retail outlets/manufacturers. Nowadays online stores are available to buy physical gold.
2. What to buy 22K or 24K? If you buy gold purely for investment purposes choosing 24K is advisable. On the contrary, 22K can be purchased for buying jewelry in the future. Moreover, while buying jewelry make sure it comes with hallmark.
3. Pros:
   • It’s physical. Gives a sense of touch and feel, and satisfies that something we own in our closet.
   • No Paper works and hassle-free. Just step into a retailer and buy!
   • No identity proof is needed for buying the gold value lesser than ₹2,00,000 (This applies only to India).
   • Liquidity(Quickly get cash for gold)
   • Priced at Spot (Specific place and time)
4. Cons:
   • Safe storage against theft or burglary.
   • Cannot be traded/sold digitally.
   • Tax, Making charges, and Wastages will be levied for jewelry.

All that glitters is not Gold

what makes this proverb beautiful? Obviously,Gold!

2.GOLD ETF

Everything is growing digital and Gold is not exempted from this rule. ETF stands for Exchange Traded Funds which means funds traded on an exchange. To put it simply, Gold ETF is a commodity-based mutual fund where the price change is based on physical gold but traded paperless. It is traded just like stocks in exchange during market hours.

1. Where to buy? Gold ETF can be purchased using the Demat account. Use the referral links at the end of the article for opening a Demat account to get offers.
2. What to buy? Many ETFs have similar characteristics. Don’t let baffle baffles you, select the ETF which is backed by a well-organized investment company. (Eg: Nippon India Gold ETF, HDFC Gold ETF, UTI Gold ETF, etc.)
3. Pros:
   • Easy to trade online.
   • Liquidity.
   • Unlike Mutual funds there is no entry or exit load in ETF.
   • Track the real price of gold from time to time.
   • Unlike Physical gold, There are no making charges and VAT.
   • Anti-theft and locker-free.
4. Cons:
   • No touch and feel of gold.
   • Exchange charges ( Very less usually), AMC (Annual Maintenance Charge), and Brokerage fee (varies with a broker) for Demat account.
   • One unit price of ETF is equal to one gram of gold.
   • Valid identity proof is required to trade ETF and it levies a tax on capital gains (long term and short term)
   • Others include tracking error, low volume, and Volatility.

3.MUTUAL FUNDS

Gold mutual funds invest in Gold ETF and it will be managed by the fund manager. Here, the price of gold is determined as NAV(Net Asset Value) and

1. Where to buy? It can be purchased from MF brokers and Banks either online or offline.
2. What to buy? Buying a Mutual fund that has a low expense ratio and is maintained by an expert fund manager is advisable. Some of the picks are SBI Gold MF, Nippon India Gold MF, ICICI prudential gold MF, etc. Also, it is advisable to go for a direct fund instead of a regular fund.
3. Pros:
   • Anti-theft and locker free.
   • Minimum investment in a gold fund can be as low as ₹1000 and the units will be decided on the NAV of the fund.
   • There will be a fund manager to take care of the investments made.
4. Cons:
   • Expense ratio and Exit load will be levied on Mutual funds.
   • Unlike ETF, mutual funds don’t allow us to buy and sell units throughout the day.
   • Similar to ETF, identity proof is required and the gold is virtual. Capital gains tax is applicable.

4.DIGITAL GOLD

What would you buy if you have ₹1? Chocolate? But now, you can buy gold for the cost of chocolate. Unbelievable right? Digital gold can make it happen!

Digital gold is a modern age instrument to invest in 24K gold in any amount starting from ₹1. The amount of money you pay, the amount of gold you get. To put it simply, If you spend ₹5 on digital gold, you will receive 0.9 milligrams. Don’t forget GST will be applicable as usual. In my childhood days, I’ll save a ₹5 coin in a piggy bank. But now, kids are buying gold. Nowadays, We have such vibrant technology.

1. Where to buy? Many payment wallets such as Google Pay, Paytm, and Phonepe are providing digital gold services in a single click.
2. What to buy? Digital gold 24K sold by providers.
3. Pros:
   • Anti-theft and locker free.
   • Minimum investment in gold fund can be as low as ₹1.
   • Invested gold can be taken as delivery in the form of physical gold.
   • Gift the gold digitally to your family and friends.
   • Can be used as collateral to disburse a loan.
4. Cons:
   • Capital gain taxes are applicable.
   • Extra spread costs such as handling, storing, and Insurance charges are applicable.
   • Identity proof is required and the gold is virtual.

5.Bonds

Gold Bonds are government securities denominated in the form of gold. Not many countries provide gold bonds and this content is specific to India. Sovereign Gold Bonds(SGB) are popular in India where investors have to pay the issue price and the bond can be redeemed at maturity. Since it is backed by the government, it is considered a secure way of investing in gold. Also, RBI offers interest on the bonds every year till maturity.

1. Where to buy? It can be applied either online or offline in banks, RBI, Post offices, and Brokerages.
2. What to buy? Sovereign Gold Bond Scheme (SGB).
3. Pros:
   • Anti-theft and locker free.
   • Minimum investment on bond starts from a gram of gold whereas the maximum can be 4kg of gold.
   • Investors will get an interest rate of 2.5% per annum of the total investment value.
   • Returns more than actual gold because investment per gram is ₹50 less than nominal value when invested online.
   • Redemption after maturity is tax-free.
   • Can be used as collateral for loans.
4. Cons:
   • Lock-in period for Bond is 8 years. However, investors can exit after 5 years (During interest payout days)
   • Cannot be redeemed as gold or jewelry
   • Identity proof is required and the gold is virtual.

Link to read RBI Gold bond scheme : Reserve Bank of India – Notifications (rbi.org.in)

6.GOLD FUTURES:

Gold Futures are derivative contracts that allow investors to buy or sell at a pre-planned future price and date. Futures comes under derivative trading. This comes under trading and needs to be discussed in detail. I’ll cover trading in the upcoming blogs. Without financial knowledge or an advisor, it is not recommended to invest in Gold Futures. To put it simply, let’s take up an example. A trader is buying the gold contract for 1month assuming the gold price can grow 20% in 1 month. Moreover, If the assumption goes right, the trader will make money else there will be a loss.

1. Where to buy? Futures can be bought and sold through brokers using a Demat account. It requires commodity (MCX) eligibility in the Demat account.
2. What to buy? Future contracts with a predicted date. Example: 05DEC2022, 05AUG2022.
3. Pros:
   • Anti-theft and locker free.
   • It’s derivative trading that provides contracts at cheaper prices when compared to the other strategies and provides high returns in short term.
4. Cons:
   • Highly risky since the trader needs to get profit within the contract duration.
   • Demat account with MCX should be enabled for trading.
   • AMC, transaction charges, and Brokerage fees will be applicable for transactions made in the Demat account.

GOLD- A CUSHION!

Whenever there is an economic crisis, investors will run towards gold. Why? It’s the fear that makes people crazy and stacking gold makes them feel safe. As a result, the gold price will increase rapidly during these times. And that’s the reason to call it a “Cushion” for falling assets. All other assets will fall drastically during the economic crisis but gold is the only investment that appreciates rapidly during a crisis.

TO WRAP THINGS UP

We live in a world where a lot of uncertainties are happening (Covid-19, Inflation, War, etc.). So, SimplyRead suggests, “Every investor must invest a particular portion of their total investments in Gold”. Choosing any of the above methods is subjectable to the investor’s decision and potential.

If you’re ready to go for the long term, it is wise to choose bonds that give the investment with interest. Otherwise, investing in anything among Mutual fund/ETF/ Digital gold is a better choice. In addition, buying physical gold is advisable when the investor is about to purchase jewelry in the near term but storing them safely should be taken care of.

Golden words for Gold from SimplyRead! Which way you have chosen to invest in Gold? Let me know in the Comment box. Thanks!

Also Read : Invest In Yourself-The Skeleton Key to unlock your potential! – SimplyRead

REFERAL LINKS FOR BROKERAGES:

Click here for referral links to open account with the brokerages.