When we have a look at the returns which we have earned from gold in previous years, it's quite good. In 2010 gold was trading at Rs. 18500 (as per 10gms) and today it is trading at around Rs. 48000 (as per 10gms). So, it has compounded our money at 10% CAGR in last 10 years which is too good. If we look in previous 20 years then, in 2000 gold was trading at around Rs. 4400 and it has compounded our money at a CAGR of 12.7%. So, clearly gold is a very good investment option for long-term investors. But wait, if you are going to invest in gold by just seeing these returns. It is your responsibility to know every single thing if you are going to invest even your one rupee. So we are going to discuss everything about gold investments in this article.
How to invest in gold?
Everyone wants to invest in gold but some cannot afford it as it is too expensive. Also, they don't know how to invest in gold in a small amount. There are some ways in which you can invest a small amount also.
1. By buying physically
Most of the people when they save a lump sum amount used to make gold jewelry in the hope that it will give them good returns someday and it does too. Also in marriage gold ring used as a sign of love.
Let's talk about some merits and demerits of buying gold physically.
Advantages of investing in physical gold
1. Liquidity
There is no problem with liquidity in gold. Whenever you need money, simply you can go to the jewelry shop and sell it there. It will be sold at the current price of gold.
2. Jewelry
Most people want to enjoy gold as jewelry. They use to wear it at parties, weddings, functions, etc. It doesn't affect the price of gold.
3. It can easily pass on to the next generation
Usually, people gift their old ornaments to their children and children to their children. The great benefit of Gold is that it never be outdated. You can easily change your old ornaments to a new one by paying some make charges only.
Disadvantages of investing in physical gold
1. Chances of theft
If you are keeping gold in your home then there is always a chance of being theft or you are going somewhere while you have worn it then always there is a chance that burglars will try to divest it from you.
2. Making charges
When you buy physical gold as an investment instrument it also includes making charges which is a lot. But when you go to sell it to the jeweler he will not pay you the making charges.
3. Security charges
As you know keeping the gold at the home is not safe. So, when you go to the bank to keep your gold secure. They will ask you for some charges to keep your gold in the locker.
4. Purity
It is very hard to find whether the gold you are buying is pure or not. when you go to a trusted jewelry shop to buy gold they will give you the guarantee of purity but ask too much making charges. If you go to a jewelry shop considering the making charges low then there is no guarantee that the gold you are buying is pure or not.
Gold mutual funds
Most of the mutual fund schemes are debt schemes or invest in equity. But some mutual funds also available in the market which invests directly in gold. The NAV of that funds follows the price of gold. Many investors invest in gold mutual funds to diversify their portfolio as whenever the stock market falls down the price of gold rises. Also, there is no problem with liquidity you can easily redeem your investments in your bank account.
Advantages of investing in gold mutual funds
1. No making charges
As this investment is not in physical form so there is no question of making changes. Simply you give your money to the scheme and they manage your funds and will only charge an expense ratio as their commission which is about 1%.
2. No chance of theft or burglary
Again as this investment is not in physical form. So, there are no chances of being theft or burglary.
3. No security charges
Your investment is secured in mutual funds. You don't have to pay extra security charges like in the physical form of gold.
4. No purity problem
The gold in which you are investing is in your portfolio not in physical form so there is no tension of purity.
Disadvantages of investing in gold mutual funds
1. You can not feel your investment
Indians generally want to feel the investment in their hands but in this case, you are investing in gold but not in physical form but in a gold scheme. Also, you can't use it as jewelry.
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Gold ETF (Exchange-traded fund)
Gold ETF is another certificate form of gold. You need a Demat account to store it and you can buy it from stock exchanges. You can buy the gold ETF at almost the current price of gold. It is very similar to gold mutual funds but the difference between them is that you can make a SIP (systematic investment plan) in gold mutual funds but there is no option of SIP in ETF. Whereas you don't need any Demat account to invest in gold mutual funds. Also, there is no problem with liquidity you can sell it easily whenever you need money.
Advantages of investing in Gold ETF
Merits of gold ETF are very similar to the gold mutual funds.
- No making charges
- No chances of theft or burglary
- No purity problem
- No security charges
And demerit is also similar to the mutual funds as this is in certificate form so you cannot feel your investment in your hands.
Digital gold
Digital gold comes in market as a solution of every problems related to gold investment. Now you can start gold investment with a single rupee. You don't need any Demat account to invest in digital gold.
You can invest in digital gold via your wallet like phone pe, google pay and paytm.
The great advantage of investing in digital gold is that there is no problem of purity, no making charges, no security charges, and also no problem of liquidity.
Another great advantage of digital gold is that you don't need to go to any jewelry shop. You don't need any paperwork you can just buy it through your smartphone using an app.
But there are some limitations as well while buying digital gold;
Every app has a limit that you can invest in digital gold up to a limit like 100gm, 200gm... it's just an example the limit could be anything as I told you that every app has a different limit.
Every app has also has limitations over time a period that you can hold up to 5 years or 7 years after that you have to redeem your investment. It is different in different apps.
And another great advantage of digital gold is that you can easily sell it and get cash either you can get the delivery in the form of physical gold on your residence.
Sovereign gold bonds
Sovereign gold bonds are electronic form of gold. It is usually issued by the Reserve Bank of India on the behalf of the Indian government. As it is issued by Indian government so it is very safe and secure. Usually government issues it in some months time to time. The price of these bonds directly follows the current trading price of gold.
The minimum investment an individual can do in digital gold is 1gm and it can be a maximum of up to 4kg.
You can get the forms from banks or post offices and apply it easily. They will tell you the whole procedure.
Limitations
The mature period of these bonds is 8 years. But you can apply for the redemption after 5th year. If you want to sell before 5 years then there is another option you can sell these bonds on stock exchanges but RBI won't gonna pay you before 5 years.
The great advantage of these bonds is, before these bonds you don't get any interest on gold. But sovereign bond gives you 2.5% interest two times a year. So, now you can earn interest also on your gold investment which is not possible in other ways of gold investment.
Gold vs Equity
Usually, whenever the stock market falls down all the investors try to shift into gold because when the stock market falls the price of gold rises in an unexpected way. That's why in this covid-19 pandemic when the stock market is falling down the price of gold touching the top.
There is no question when it comes to better returns between gold and equity. As we saw above gold has compounded our money at 10% CAGR but the Sensex returns profile is not too good in the previous 10 years as its CAGR is only 3.27%. When it comes to the previous 20 years gold has compounded our money at a CAGR of around 12.7% and Sensex CAGR in the previous 20 years is about 12.35%.
But you cannot consider that gold is better option than equity by seeing the returns profile. See, the price of gold simply depends on demand and supply when the demand for gold increases the price of gold decreases, when the demand decreases the price of gold also decreases. But in equity price of a share is directly derived from the company. If the company is able to expands its business and earns profit continuously the price of share will increase. So by doing good analysis and research you can earn that much returns which can't be earned by investing in gold.
And the big difference between the gold and equity or you can say the big advantage of investment in equity is that most of the company distributes their profit to their shareholders regularly in the form of a dividend. Whereas gold is not a regular income source.
But it doesn't mean that gold investment is not good if you don't want to take risks or don't have enough time to analyze any company then you can go with gold investment. Also you can make 5-10% of your investment in gold to diversify your portfolio as an hedge. As It will maintain a balance in your portfolio.
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The Bottom line...
Above all the data given as of 7th of July, it may be changed with the changes in the price of gold. The article is for only knowledge purposes meanwhile the author is not giving you any investment advice, please consult with your financial advisor before investing.
So these were the 5 ways through which you can invest in gold. Let's end the article here if you liked the article, don't forget to share it with your friends and your loved ones. Goodbye and Happy Investing! ✌✌
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