The recent unprecedented developments in the market have resulted in the gold price per gram breaching the Rs 5,000 barrier. With gold being so expensive, the question is, should you purchase gold jewellery this Dhanteras? Is there a way to buy gold without spending a fortune on it?
The surging gold price has called for a smarter way of getting gold. This Dhanteras, be a gold investor and not a buyer. Buying physical gold is not worth it. Why do you want to incur unnecessary charges such as making and wastage charges along with a GST at 3% on the entire purchase value?
There are many alternatives to physical gold, and it’s about time that you look at them. Here are four ways to invest in gold this Dhanteras:
1) Gold Mutual Funds
Gold funds are a class of equity mutual funds that invest directly or indirectly in gold reserves. The asset allocation of these funds is made towards physical gold and equities of companies that are involved in gold mining, distribution, and other activities about gold. Gold funds are open-ended, meaning you can buy or sell units of a gold fund at any time.
The stand out feature of gold funds is that you can invest a sum as low as Rs 100 to Rs 1,000. Since the underlying asset of these funds is gold, the price of fund units (NAV) of a gold fund is directly influenced by the changes in the gold price. You need not worry about the purity of the gold as each unit is backed by physical gold of the highest purity. Gold fund units are issued in dematerialised form, and hence, there is no risk of theft.
2) Gold Exchange Traded Funds (ETFs)
Gold exchange-traded funds or gold ETFs are commodity-based mutual funds that are traded on the stock exchanges. The units of a gold ETF are issued in the dematerialised form. These are open-ended and are traded like stocks. One unit of a gold ETF represents one gram of gold. The movement of gold price influences the pricing of units of gold ETFs. Investing in these ETFs is suitable for investors looking to gain exposure to gold and have a long-term horizon.
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3) Digital Gold
The advent of fintech companies has paved the way for the introduction of digital gold. This form of investing in gold is safe and convenient. Digital gold is offered by leading refineries and metal trading companies (both domestic and international) through various online investment platforms. You can purchase gold at the prevailing price. Each purchase of gold you make will be credited to your digital gold balance. You have an option of buying gold in denominations by weight (grams) or currency (rupee).
You have to buy a minimum of 1 gram or 1 rupee. When you buy digital gold, the corresponding amount of physical gold is set aside in a vault in your name. If you are to sell your digital gold, the redemption proceeds can be received in two ways. First, your linked bank account will be credited with a corresponding amount. Second, you have an option of collecting physical gold delivered to your doorstep. The choice is yours.
4) Sovereign Gold Bonds (SGBs)
Investing in sovereign gold bonds (SGBs) is a safe way of investing in gold as these bonds are issued by the central bank (RBI) on behalf of the government. The bonds will be available for subscription through the notified banks, stock exchanges and post office branches. Multiples of grams of gold denominate sovereign gold bonds. These bonds come with a tenure of eight years, and you have an option to exit after holding them for five years.
The minimum investment is one gram, while you can invest up to 4 KG for individuals and 20 KG for trusts. You get an interest of 2.5% a year. The redemption price is the simple average of the closing price of 999 purity gold of previous three working days, published by India Bullion And Jewellers Association Ltd. The next tranche of SGBs, i.e., 2020-21 Series VIII, will be open for subscription from the 9th of November through the 13th of November. The bonds will be issued on the 18th of November 2020
Holding physical gold is now a thing of the past as it comes with additional costs such as making and wastage charges. When there are better ways to hold gold, why still stick to the traditional method? Make a wise move this Dhanteras. Be a gold investor and not a buyer.
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Engineer by qualification, financial writer by choice. I am always open to learning new things.