Considering the Gold Sovereign Bond offer? Here's your guide to investing in gold!



Aug 2, 2020

The next time you feel you don’t understand investments, remember the ease and confidence with which our mothers and grandmothers invested in gold. On special occasions or on saving some money, they would buy gold jewellery or bars for future use. Many times the gold would also come of use in unforeseen times.

In fact this very characteristic of gold performing well in testing times like these, has led to the gold prices touching a historic high of ₹ 54000 per 10 gram this week.

What are the benefits of investing in gold?

  • When the equity market is performing badly, gold typically performs better as an investment and provides some stability.

  • When inflation is high, gold has historically performed well. In those times, people tend to invest in gold.

  • Gold is easier to sell compared to other physical assets like real estate and does not require any technical knowledge or experience to purchase.

Does it make sense to invest in gold right now?

In the past 10 years, while the price of gold has seen great volatility, the annual growth rate has been only around 9%. If you wish to allocate a portion of your investments towards gold, we recommend that you limit it to 5 - 10% of your entire portfolio. Investing in gold in instalments over a period of time will ensure you invest at different cost prices.

So how can you invest in gold?

Gold can either be bought physically in the form of jewellery, gold bars or coins or in digital/paper format in the form of Gold Sovereign Bonds, Gold ETF (Exchange Traded Funds) or gold mutual funds.

Let’s learn more about the 3 most preferred options to buy gold:

Gold Jewellery, Coins and Bars

  • Jewellery is mainly bought for consumption whereas bars and coins can be purchased as investments. However be mindful that it requires to be kept highly safe and quality issues arise when you are trying to sell it.

  • Jewellery can be bought from a jeweller at that days’ market price plus making charges anywhere between 1% to 20%.

  • Gold bars can be purchased from a jeweller, bank or non-banking finance company.

  • Ascertaining the purity and weightage of gold jewellery/ bars/ coins cause difficulty while selling.

  • This also requires you to put aside minimum amounts of money such as half a gram of gold or 1 gm of gold.

Gold ETFs

  • Gold ETF is a digital gold investment that is traded on the stock exchange and can be bought and sold like a stock.

  • Can be purchased at market price of gold and additional management charges and brokerage

  • A demat account and a trading account with a broker are required to invest

  • The minimum quantity that can be purchased is 1 gram

  • Extremely liquid and can be redeemed at any time

Gold Sovereign Bonds

  • This is a type of digital gold investment with assured interest of a fixed 2.5% per annum

  • Safest form of investing in digital gold as they are issued by the Reserve Bank of India on behalf of the Government of India

  • Can be bought at the fixed rate set by the RBI

  • There is no management expense or any other fee

  • The investment can be made only when the RBI makes them available for purchase. The application can be made online or offline through commercial banks and designated post offices.

  • The minimum quantity that can be purchased is 1 gram and maximum 4 kilogram

  • These bonds have a tenure of eight years with an early exit option from the fifth year onwards.

The fifth tranche of Gold Sovereign Bond is open for subscription 3rd to 7thAugust, 2020 at a fixed price of Rs 5,334 per gram. While the price of gold has considerably shot up in the past month, if you are looking to invest ingold for a long time, this can be an option worth considering.

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