Are returns on gold good enough to meet financial golds? Is the gold jewelry in your closet a good investment? Why do people buy so much gold? Confused? Don’t worry, we’ve listed everything you need to know before investing in this shiny metal:
There are different ways in which people invest in gold:
- Gold Jewelry
- Gold Coins & Bars
- Gold ETF
- Gold Savings Fund
- Gold Bonds
Some of these could be seen as an investment while some not so much:
1. Say NO to Gold jewelry, here’s why:
Though this the most traditional and oldest way of investing in gold people are realizing that this might not be the most ideal way of investing in gold because of the heavy losses involved in the form of making charges. This can vary from a minimum of 10 per cent to as high as 35 per cent for special and complex designs. Another risk with gold jewelry in the problem of theft and fraud. Jewelers can trick you by selling substandard gold at higher prices. That’s why it is advisable to buy gold jewelry only for wearing purposes and not for investing. And buy it from a reputed jeweler!
2. Say NO to Gold coins and gold bars, here’s why:
Another way of buying physical gold is through coins and bars. You can buy these coins and bars from a bank or a jeweler. Though a bank is a more reliable source, they charge a higher amount than jewelers and banks only sell gold coins and bars they do not buy them. Apart from that, banks charge premium for these coins which is around 5-10 per cent and at the time of selling your coins or bars to someone you will have to sell it at a discounted price so overall your returns will go down. And besides these can’t even be worn like jewelry so overall this isn’t a good option!
3. Say MAYBE to Gold Saving Funds, here’s why:
These are mutual funds which invests in real gold . They pool in money from people and buy gold and you can buy the units of these mutual funds . The good part about this is you don’t need a demat account for this and you can invest via the SIP route. But the sad part is that you pay administrative charges and expense ratio just like any other mutual funds.
2. Say YES to Gold ETF’s here’s why:
Gold ETF is a type of Mutual Fund that invests in gold and the units of this mutual fund are listed on the stock exchange. You can buy these just like you’d buy stocks by opening a demat account. An ETF is a digital version of physical gold. This is a very convenient way to invest in Gold especially if you already have a demat account. You can even start with a small amount (1 gm value) and as and when you want you can invest from time to time. While investing in these make sure the ETF you pick is liquid, which means you can easily convert it into cash.
4. Say YES to Gold Bonds, here’s why:
These are government securities issued by the RBI which are an alternative for holding physical quantities of gold. The minimum denomination is two grams, and you can go up to 500 grams. You purchase them at the prevailing gold rate, and after that you can trade them in the markets or you can hold them till maturity. They will also fetch you interest at the rate of 2.75%.
Why buy gold?
Gold should be an important part of a diversified investment portfolio because its price increases when value of paper investments, such as stocks and bonds, decline. Although the price of gold can be volatile in the short term, it has always maintained its value over the long term. Gold is commonly referred to as a protective hedge against inflation, deflation and currency devaluation. It is advisable to invest 10%-15% of your investment funds into gold.
So before you buy gold think twice and ask yourself: Is this for wearing, storing or investing ? Depending on these you can buy gold in the different ways listed above.