Investment in Gold, HOW TO INVEST IN GOLD

The investor generally buys gold as a way of diversification of Risk. Gold is considered the safest heaven among all precious metals across a no. of countries. Gold has been giving a good appreciation in the long term that is above the inflation index. Thus Gold can be seen as an asset that helps to create wealth as well is used to control and hedge financial market risk and rising inflation. It is, therefore, a general recommendation of the experts to invest 10-15% of our portfolio in gold. The various factors that affect the price of gold are:

  1. Weakening or hardening vis-à-vis the US $ increases the price of gold.
  2. An increase in crude prices causes inflationary pressure that increases the price of gold.

We discuss herein the various investment option in Gold investment, their pros-n-cons vis a vis each other.

Digital Gold:- Here, the purchase or sale of the gold is done electronically. There are three vendors and refiners who are offering digital gold in India.

  1. Augmont Gold
  2. MMTC-PAMP India Pvt. Ltd
  3. Digital Gold indiaLTD. With its Safe Gold 


The popularity of Digital Gold is enhanced by the availability of its product through wallets and stockbrokers such as Paytm, Amazon prime and Groww, Kuvera, and other stock brokers. These platforms have enhanced the reach of digital Gold much more than the Sovereign Gold Bond and Gold ETF. The cost of purchase of digital Gold- GST@3% is added to the cost besides the cost of making Gold, delivery charges, besides this the charges for storage, insurance, and charges of the trustee. The storage charges may be levied every 5 yrs., if delivery not taken is added to the cost. In Gold Bond’s delivery of gold can be taken at as low as 8 gms. Of Gold purchased. Thus the charges for Gold purchased under Digital Gold are around 5-6% which are slightly higher than the other method. Long-term Capital Gains are applicable only after three years of holdings but Wealth tax is to be paid on regular basis. The brokerage charge in Digital Gold is 0.25% of the cost. The other problem in Digital Gold besides cost is that there is no regulator for the Digital Gold issuing Companies to monitor the quality and storage of the Gold held by them. Although trustees are appointed by them to look over this aspect the truth is that purity and amt. of gold are not guaranteed here. 

Gold ETF’s:- These are being floated by Mutual Funds. One can buy or sell Gold Units of a minimum of 0.5 gm to 1.0 gm units which vary among fund houses. These units can be purchased on their platforms directly or through brokers who are to be paid brokerage for their assistance. Here in the delivery of Gold can be taken a minimum of 500 gms to 1 kg. The charges for the Gold ETF are maximum of 1% of the cost. Although, one has to bear the cost of opening the Demat account and their maintenance charges. A transaction fee in Gold ETFs is a minimum of Rs. 1/ lakh. Long Term Capital Gains in respect of Gold ETF’s are applicable after one yr. of holding. Further GST is charged on Gold ETF only when you take the delivery of Gold. Gold ETF is regulated by SECURITY & EXCHANGE BOARD OF INDIA. Thus the quality and quantity of gold are being regulated. 

Sovereign Gold Bond of India:- These Bonds are floated by the Government of India and are being regulated by the Reserve Bank of India. The Sovereign Gold Bond is issued by the Branches of the Banks and the Post Offices. These bonds are available in the unit of 1 gm. Of gold and the multiples thereof. The maximum of Gold units that can be subscribed by an individual is 4 kg of Gold and the trust and companies can subscribe to a maximum of 20 kg of Gold units in a Yr. No charges are levied on the customer for purchasing these bonds as the commission is paid to the Bank and post office directly by the Government of India. Here the customers are paid interest @2.5% yearly paid on a half-yearly basis. The Gold Bonds are floated for a period of 8 Yrs and these bonds can be prematurely encashed any time after 5 yrs. at the time of coupon payment. However, the bearer has to give a notice of 1 month for encashment These bonds are tax-free if encashed on maturity, although long-term capital gains will be applicable if encashed prematurely. The interest paid half-yearly will nevertheless be taxed normally as per the income of the bondholder. Unlike ETF and Gold Bonds, you can not take the delivery of Gold in Sovereign Gold Bonds, it will be paid in cash. Thus Gold Bond helps you to earn nominal income besides the possibility of appreciation in the prices of Gold.


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