All that glitters: A guide to investing in gold 🪙



Feb 9, 2022

We all love gold 💛 (or, at least we know someone who does). Centuries might have passed, but the idea of buying gold - be it as a safety net for that rainy day, as an investment, or even as a gift, has been so hard-wired into our culture, it's not surprising that India is the largest importer of gold in the world.

In fact, when we look at the cultural significance of gold jewelry in our lives, we see gold being treated as an avenue that women can hold on to and count on. And that made sense because women were not allowed to hold property, and even today, women don’t form a major part of the labor force.

But we see this changing - slowly but surely. From an investing standpoint, with all the hassles of physical gold (such as jewelry and coins), we see many investors turning to different forms of gold and making it a part of their portfolio.

But hold on, let’s take a step back. The bigger question still prevails - should you buy gold? 🤔

Gold offers much-needed stability when the markets are not doing all too well. In the last 40 years, there were 8 years where gold gave a negative return. Considering these factors, gold can be a good investment opportunity, but only to the extent that it forms 5-8% of your overall portfolio. When you buy gold, make sure that you don't try to "time" the market, as with any other investment avenue.

Now, let's dive into the many faces of gold - and check out all the options that are available to you as an investor:

First off, Gold Mutual funds: Gold mutual funds are great if you want to invest small amounts in gold, periodically. You can start at as low as INR 100 with a SIP and get all the convenience that a typical mutual fund offers. Gold mutual funds invest in Gold ETFs (Exchange Traded Funds), that represent physical gold. Essentially, the value of your mutual fund will closely follow the market value of physical gold. Just make sure you check the expense ratio and exit loads before investing!

Next, you can also opt to directly invest in Gold ETFs. These have lower expense ratios than mutual funds. However, you do need a demat account to get started, along with a minimum investment value of 1gm of gold.

The good part about gold mutual funds and Gold ETFs is that their value is location agnostic - whether you're in Bangalore or Mumbai or Chennai, the price of gold will be the same.

Up next, we'll shift gears and talk about Sovereign Gold Bonds, or SGBs. SGBs are issued by the RBI and give regular small interest payouts (around 2.5%). They have an 8 year lock-in period and are open for subscription only a few times a year. Due to the lock-in, they are not suitable for short-term needs and can be difficult to sell off otherwise. The good part: they give a regular interest that other forms of gold don't. Also, there's no taxability here, you're only taxed on the interest you earn - which gets added to your annual income.

Finally, everything is going digital 💻 and so is gold. Digital gold can be bought through platforms of banks, fintech companies, brokers, etc. The price of gold is set by vendors or issuers. You can convert digital gold to physical gold, and you can get started with as low as ₹ 1. However, it does have a GST cost to it, which might affect your return over time. Be mindful of the fact that digital gold is unregulated.

And lastly, if you still want to go the physical gold way, you can also check out Gold Saving Schemes that are offered by prominent jewelers. You basically deposit a sum periodically, and at the end of a set tenure, you can purchase gold equivalent to the amount of the deposit. You don't earn any interest on the deposit, but you might get a bonus on the total value when you end up purchasing gold.

And that's pretty much it! Before you invest in gold, make sure your decision is based on how much you want to invest, the lock-in period, and the associated costs. 💡 At the end of the day, investing in gold, like any other avenue, only makes sense if it aligns with your overall goals!

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