How To Plan Your Gold Investments

Gold has occupied a prominence place in human civilization. The recorded history of gold dates back to ancient Egypt around 3,000 B.C. Gold was much sought by pharaohs and temple priests alike, and was used to create both jewelry and idols for worship. Back home, gold earns a special mention in the Hindu epics, which demonstrates that the yellow metal was cherished by Indian society and culture. "Gold is the only asset in India which safeguards wealth against a depreciating currency and inflation because these are already priced into gold," according to Sudheesh Nambiath, Head, India Gold Policy Centre (IGPC). In modern society, gold has transcended its aesthetic value and emerged as a viable investment option.

Why Gold?

People purchase gold for a variety of reasons, ranging from its religious significance to its utility as a tool of investment. Gold is revered as a symbol of Hindu Goddess Lakshmi in India. It is considered auspicious to buy gold during festivals such as Diwali, Dhanteras and Akshaya Tritiya.

Gold has become synonymous with wealth creation as its price trends upwards over the long run. Jewellery is regarded as a traditional store of wealth in rural India and this hinterland accounts for two-thirds of the country's total gold demand.

Gold is a strong shield against inflation as due to its limited supply, gold appreciates in tandem with a general increase in prices. Gold is a hedge against the dollar as due to its pricing in US dollar terms, weakness in the dollar inevitably leads to a rise in the price of gold. Gold is a safe haven asset as it remains stable amid stock market corrections, currency wars, social instability and high inflation. Gold acts as a bulwark in times of emergency as it is can be converted into cash at ease.

How to Invest in Gold

The beauty of gold, from the investment point of view, is that it easily lends itself to a wide array of investments ranging from physical gold to mutual funds and bonds.

Physical Gold

Buying physical gold is inarguably the oldest route to gold investment. Gold can either be bought in the form of gold jewellery or as gold bars and coins. Gold jewellery is basically purchased for consumption purposes, although it serves as an investment product in itself. It is necessary to keep in mind that a buyer not only pays the market price of gold, but also making charges for the jewelry and this can be as high as 15% of the actual price of gold.

Gold bars and coins are more profitable investments than jewellery. The essential difference between jewellery and gold bars / coins is that the latter are made of pure gold and do not involve any making charges. Gold coins and bars are made available through any designated outlets of Metals and Minerals Trading Corporation of India (MMTC) and specified bank branches and post offices.

Gold ETF

Gold ETFs, as the name suggests, are exchange-traded funds that invest in physical gold. Gold ETFs are akin to stocks as they are traded on the bourses, and a demat account and trading account are all that are required to go for gold ETFs. Gold ETFs invest in 99.5% pure gold. About 90% of the invested money is invested into physical gold and remaining goes into debt Instruments. The best part about gold ETFs is, they are listed on the BSE and NSE, which means that they can be easily transacted and in quantities lower than physical ownership of physical jewellery, bars and coins.

Gold Funds

Gold funds invest in the shares of companies operating in gold and allied services. Gold funds, unlike gold ETFs, are managed by fund managers on the lines of mutual funds. Gold mutual funds are ideal for risk-averse investors as they work on the principle of diversification. They invest across a gamut of companies, rather than putting all eggs in one basket.

Gold Fund of Funds

Gold Fund of Funds or Gold Saving Funds are mutual funds that invest in gold ETFs. These are ideal for investors who do not want to obsess about individual gold ETFs. Gold funds of funds are investor-friendly; a DEMAT account is not a pre-requisite for investing in these financial instruments and there is no need to constantly monitor the investment portfolio.

Gold Mining Shares

Investing in gold mining shares is another attractive option for those bitten by the gold investing bug. Prospective gold investors can purchase shares of gold mining companies directly from the secondary equity markets. These prices function just like any other company shares listed on the bourses and tend to rise in unison with appreciation price in global gold prices.

Sovereign Gold Bonds (SGBs)

Sovereign Gold Bonds (SGBs) are issued by the Reserve Bank of India from time to time. A window for fresh sale of SGBs is opened every 2-3 months and remains open for around a week each time. These bonds have a tenure of eight years, with an exit option in the fifth, sixth and seventh year.

To conclude, gold counts among the most popular investment options and will remain so in the foreseeable future. It is of paramount importance that investors to have clarity on their investment goals, time horizon and comfort level, and choose the gold investment option that best resonates with them.