Investing in gold? See which option is best for you
The aphorism may well be ‘all that glitters is not gold’, but now it’s time when all that is gold does not glitter. With the festivity still all around, it’s time to remind oneself of this.
The aphorism may well be 'all that glitters is not gold', but now it's time when all that is gold does not glitter. With the festivity still all around, it's time to remind oneself of this. People across the country consider the time around Diwali to be one of the most auspicious times to buy gold. It is widely perceived that purchase of gold during this time is almost as good as inviting the Goddess of Wealth and Prosperity into one's home. Gold is considered a safe haven because it serves as a reliable investment in times of crisis and has retained its value over the years. Mind you that over the last 30 years, gold has garnered 10 per cent of annualised return. It is often used as a hedging tool against inflation and currency devaluation. Thanks to its universal acceptance, gold has normally delivered higher-than-inflation returns.
What is important to remember in the current context is that options for buying gold are no longer reserved to just physical gold. The Yellow Metal can now be bought and stored online, thanks to advent of technology. Investors can choose from the available avenues on the basis of their investment objective, time horizon or risk appetite. Some of the options are Sovereign Gold Bonds (SGBs), Gold Exchange Traded Funds (Gold ETFs), Gold Mutual Funds, Gold derivative contracts, Digital Gold and Electronic Gold Receipts (EGRs). Among them, digital gold is not well regulated.
This festive season, for instance, one can and should think of different instruments for investing in gold. These instruments include: Sovereign Gold Bonds (SGBs), Gold Exchange Traded Funds (Gold ETFs), Gold Mutual Funds, Gold Derivative Contracts, Digital Gold, Electronic Gold Receipts (EGRs).
Gold ETF is an exchange-traded fund that closely tracks the domestic gold price. One Gold ETF unit is equal to 1 gram of gold and is backed by physical gold of very high purity. ETF is popular among new investors who want to start small, because of its ease of use. A Demat account is required to transact in Gold ETFs and they can be purchased or redeemed through exchange just like equity shares and have high liquidity. Gold ETFs combine the flexibility of stock investment and the simplicity of gold investments.
Sovereign Gold Bonds, on their parts, are the perfect option for people, who want to buy gold solely for investment purposes. Sovereign gold bonds are issued by the RBI, on behalf of the Government of India. The best thing is that you can buy as little as 1 gm, and hold these bonds either in paper or Demat form, whatever is convenient. The key benefit is the annual interest of 2.5 per cent on the amount of initial investment, which is paid semi-annually.
Then there are Gold Mutual Funds. These are open-ended funds where they do not invest directly in physical gold but invest in units of a Gold Exchange Traded Fund (ETF). Gold mutual funds provide the investors with the option of investing through a systematic investment plan (SIP) where one can start by a minimum investment of Rs 1000 (as monthly SIP).
The best part of investing in gold is that it has kept its promise of safety and prosperity in the past even in times of volatility and is likely to keep its shine in the years to come, irrespective of whether it glitters or not.