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How to Invest in Gold?

old as an asset class has always proved to be a safe haven for investors in times of uncertain economic conditions or stock market crashes. This is due to the negative correlation with the stock markets. Despite the disruptions being caused by the Co-vid19 pandemic in the economy, prices of stock & other asset classes, the gold has been surging to its new high levels. Investments made last year in Gold ETFs have generated a return of approx.47% which is the highest among all the asset classes. As per experts, investors can look into allocating a 5-10% of their portfolio in gold assets. It will help to reduce the volatility of returns by providing the diversification benefits in the portfolio.

 

How to invest in gold? What are the ways to invest in gold?

 

There are many ways to invest in gold in India and each way has its own pros & cons. Investors can select the investment option best suitable for their needs & requirements. Some of the ways investors can get exposures in the gold asset class are:

 

  1. Physical Gold- The traditional way to make an investment in gold has been to purchase physical gold in the form of gold coins, gold plates or jewelry, etc.

Making investments in physical gold has various limitations relating to:

  • Having physical gold can be exposed to the risks of theft, or the designs being outdated.

  • Owning Physical gold involves extra costs related to making charges, fees paid for bank lockers, or gold insurance charges. 

 

  • Gold ETFs & Gold Mutual Funds- Gold ETFs are the Exchange Traded Funds that track the price movements of the gold through underlying investments in physical gold assets. And Gold Mutual Funds are the mutual funds that invest in these ETFs or Fund of Fund Schemes invested in ETFs. The ETFs are listed on exchange and sale/purchase of the gold ETFs can be made just like trading in stocks.

    • Gold ETFs mandatory requires trading & Demat account for investment whereas there is no need to have the same for investing in gold mutual funds. 

    • The Gold ETFs or mutual funds would provide the opportunity of capital gains to investors through a rise in the value of the asset over time.

    • Unlike SGBs, There is no fixed maturity for the Gold ETFs or Mutual funds and the investors can redeem their investment as per their requirements.  

    • Investments in Gold Mutual funds can be made by an SIP Investment of as low as  Rs.100.

 

  • Sovereign Gold Bonds: Sovereign Gold Bonds are the bonds issued by the Reserve Bank of India on behalf of the Indian Government. Unlike Gold ETFs or Gold Mutual funds, these bonds are not backed by the physical gold.

    • The SGBs along with providing for the participation in the price movements of gold incurring capital gains/losses, also make regular interest payments to the holders. The annual interest rate for the bond has been fixed at 2.5% p.a. and is payable semi-annually to the investors. The interest paid to the bondholders is taxable as per the income tax slab rate applicable to them. 

    • The SGBs have an investment tenure of 8 years i.e the investment amount is paid back at the end of 8 years. However, it provides investors an early exit option from the 5th year(lock-in period) onwards. Sovereign Gold Bonds also provide the benefit of full tax exemption if the bonds are held for more than 5 years on the investment amount as well as the capital gains. 

    • The minimum investment amount will be the price of 1 gram gold as announced before the opening of the tranche.

  • Investors can choose any of the mentioned investment options for getting exposure in gold as per their needs & requirements.

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How to invest in gold, How to invest in gold, Physical Gold, Physical Gold, Sovereign Gold Bonds, Sovereign Gold Bonds,

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