Unlocking the Golden Opportunities: The Best Ways to Invest in Gold
Discover the most effective and strategic methods for investing in gold. From physical holdings to digital options, explore the diverse avenues.
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In today's dynamic investment landscape, understanding the best strategies to invest in gold can be a game-changer for your portfolio. Gold, with its timeless allure, has long been regarded as a hedge against economic uncertainties. Whether you're a seasoned investor or just stepping into the world of financial growth, exploring the most effective ways to invest in this precious metal is crucial. From traditional approaches involving physical gold, such as coins and bars, to more modern methods like gold-backed exchange-traded funds (ETFs), digital gold platforms, and the SGBs the options are diverse. This blog will guide you through these strategies, providing insights into their benefits, risks, and potential returns.
Why invest in Gold?
Gold is a good investment option for those who are looking for a safe investment option. It is a good hedge against inflation and also acts as a good diversifier in your portfolio. Most of the time, Gold prices move in the opposite direction of the stock market. So, when the stock market is down, Gold prices tend to go up. This makes Gold a good hedge against stock market volatility. Historically they have given a return of around 10% over the long term.
How to invest in Gold?
There are many ways to invest in Gold. Some of the popular ways are:
- Gold ETFs
- Gold Mutual Funds
- Digital Gold
- Physical Gold
- Sovereign Gold Bonds
Gold ETFs
Gold ETFs are Exchange Traded Funds that invest in Gold. They are traded on the stock exchange like any other stock. They are backed by physical Gold. They are highly liquid and can be bought and sold easily.
Minimum Investment
The minimum investment is around INR 50-100.
Charges
They have an expense ratio of around 0.5 per annum.
Taxation
A short-term capital gain tax and a long-term capital gain tax are applicable, depending on your tax slab.
Gold Mutual Funds
These are Mutual Funds that invest in Gold. They are managed by professional fund managers. They are highly liquid and can be bought and sold easily.
Minimum Investment
The minimum investment is around INR 100.
Charges
They have an exit load of 1% if you sell them within 1 year. And tend to have a higher expense ratio than Gold ETFs around 0.5-1% per annum.
Taxation
A short-term capital gain tax and a long-term capital gain tax are applicable, depending on your tax slab.
Digital Gold
Digital Gold is a way to buy Gold online. You can buy it from your stock broker. It is backed by physical Gold. It is highly liquid and can be bought and sold easily.
Minimum Investment
You can buy as little as INR 1 worth of Digital Gold.
Charges
It has a GST of 3% and a markup of 2.5-3%.
Taxation
A short-term capital gain tax is applicable on it which depends on your tax slab if you sell it within 3 years. And a long-term capital gain tax is applicable on it which is 20% with indexation benefit if you sell it after 3 years.
Physical Gold
Physical Gold is Gold in coins, bars, jewellery, etc. It is highly liquid and can be bought and sold easily with some loss of value due to making charges and GST.
Minimum Investment
The minimum investment is 1 gram of Gold. INR 6000 approximately as per the price of Gold at the time of purchase.
Charges
It has GST of 3%, making charges of 5-15%(for jewellery), a markup of INR 45 per gram, and storage charges as well.
Taxation
A short-term capital gain tax is applicable on it which depends on your tax slab if you sell it within 3 years. And a long-term capital gain tax is applicable on it which is 20% with indexation benefit if you sell it after 3 years.
Sovereign Gold Bonds
Sovereign Gold Bonds are bonds issued by the Government of India. They are issued in denominations of 1 gram of Gold every 6 months by the Reserve Bank of India. They have a maturity period of 8 years and can be redeemed after 5 years. But investors can sell them on the stock exchange if they want to exit early. They do not only benefit from the price of Gold at the time of redemption but also from the interest rate of 2.5% per annum which is paid every 6 months.
Minimum Investment
The minimum investment is 1 gram of Gold. INR 6000 approximately as per the price of Gold at the time of issue.
Charges
They do not have any visible charges.
Taxation
The 2.5% interest rate is taxable as per your tax slab. If you sell after 5 years, the capital gains are tax-free. The RBI allows you to redeem them every 6 months after 5 years.
If you sell before 5 years, a short-term capital gain tax is applicable on it which depends on your tax slab if you sell it within 3 years. And a long-term capital gain tax is applicable on it which is 20% with an indexation benefit if you sell it after 3 years.
Comparison
| Investment Option | Minimum Investment | Charges | Returns |
| Gold ETFs | INR 50-100 | Gold prices. | |
| Gold Mutual Funds | INR 100 | Gold prices. | |
| Digital Gold | INR 1 | Gold prices. | |
| Physical Gold | 1 gram(around INR 6000) | Gold prices. | |
| Sovereign Gold Bonds | 1 gram(around INR 6000) | Gold prices + 2.5% interest rate per annum. |
Takeaway
As you can see, there are many ways to invest in Gold. You can choose the one that suits your needs and requirements.
Sovereign Gold Bonds are the best way to invest in Gold if you want to invest for the long term. They have the lowest charges and the highest returns. Not only do you benefit from the price of Gold at the time of redemption but also from the interest rate of 2.5% per annum which is paid every 6 months. And if you sell after 5 years, the capital gains are tax-free.
For short-term investments, ETFs and Mutual Funds are the best options. They are highly liquid and can be bought and sold easily. They have a low minimum investment and low charges.
Avoid Digital Gold and Physical Gold as investment options. They have high charges, and taxes and the latter is not liquid.
How to Invest in Sovereign Gold Bonds?
You can invest in Sovereign Gold Bonds from your stock broker when they are issued by the RBI. But if you want to invest in them after they are issued, you can buy them from the stock exchange or apps like Wint Wealth.
Glossary
Exit Load
An exit load is a fee charged by a mutual fund when an investor sells shares of the fund. It is usually a percentage of the amount invested.
Expense Ratio
The expense ratio is the annual fee charged by a mutual fund or exchange-traded fund (ETF) to cover the fund's operating expenses and management fees. It is expressed as a percentage of the fund's total assets under management (AUM).
Indexation Benefit
Indexation benefit is the benefit of adjusting the cost of acquisition of an asset for inflation. It is a tax benefit that is available to investors who have held an asset for more than 3 years.
Liquidity
Liquidity is the ability to convert an asset into cash quickly and easily. It measures how easily an asset can be bought or sold without affecting its price.
Mutual Fund
A mutual fund is a type of investment vehicle consisting of a portfolio of stocks, bonds, or other securities. Mutual funds are operated by professional money managers, who allocate the fund's assets and attempt to produce capital gains or income for the fund's investors.
Markup
A markup is the difference between the cost of a good or service and its selling price. It is the amount added to the cost price of goods to cover overhead and profit.