Types of Gold Investment & Its Benefits

Gold investment has long been a safe haven for investors during such testing times because of the opposite trajectory it follows to equities. However, for Indians, gold carries a much bigger value than just an investment opportunity; and when emotion comes into play, it becomes important to pay more heed to the commodity, the risks and benefits it carries. 

It becomes even more essential in the case of gold because gold can be treated in two ways: as an investment or for personal usage. The problem comes when Indians mix the two!

Different Types Of Investing In Gold

Let’s take a look at the various forms in which you can own gold, what suits you best as an investor and as a buyer. 

• Digital Gold

Digital gold investment can go as low as Re 1 as well. Such platforms generally have an association with gold traders or manufacturers like Augmont. You can make transactions in gold at live market prices and redeem it whenever you want to.

You can either choose to get your investment’s value or get physical delivery of gold. However, check with the platform you use to invest in digital gold. Not all platforms may allow you to take physical gold on delivery. Your investment in digital gold is backed by physical gold. Digital gold can be used for investment purposes.

• Jewellery

You can buy gold jewellery from jewellers but considering gold jewellery as an investment option may turn out to be an expensive affair for you.

One of the main reasons for this is that gold jewellery carries making charges. If you consider it as an investment, while selling it back you will not get your making charges back. Your returns might get compromised depending on how the metal is performing.

The making charges can range between 5-23% depending on the type of jewellery. The only advantage of jewellery is that you get physical possession. There is a touch-and-feel aspect to it.

• Coins and Bars

Gold Coins and bars may not carry much ‘usage’ value. These do carry making charges as well but are way lesser than jewellery. They are less than Rs 1,000 in most cases. Both coins/bars and jewellery carry a risk of theft and physical damage.

• Gold Bonds

Sovereign gold bonds were started as an initiative by the Government of India in 2015. The sale of such bonds is supervised by the Reserve Bank of India. It was started by the government as an alternative to owning physical gold. This is an efficient way of owning gold as an investment opportunity. These bonds have a term of eight years with a lock-in period of five years.

Bonds are backed by gold and can be redeemed in cash only. Investors are not charged any management fees on this fund.

• Gold ETFs

Gold ETFs are basically exchange-traded funds that invest in gold. They are traded on the stock market. ETFs carry Demat account charges which can range from nil to up to Rs 3,000 as well depending on the broker.

All mutual funds carry expense ratios and the expense ratio for ETFs are generally in the range of 0.5 to 1%. A gold ETF does not let you own gold but gives you exposure to the performance of the commodity.

• Gold Fund of Funds (FOFs)

Fund of funds are mutual funds that invest in other mutual funds. They carry a higher risk level and are more expensive. Gold mutual funds invest in gold ETFs and they carry the expense of gold ETFs it is investing in and its own charges as well. 

• Gold Savings Schemes

Gold savings schemes are schemes that are run by jewellers. In such schemes, you have to deposit money with a particular jeweller of your choice in a periodic fashion (mostly monthly).

After the scheme matures, you can buy gold from the same jeweller for the amount you invested with them. The jeweller may add some bonus to the amount at the end and give you your jewellery on that added amount. Many people pick such schemes when they think of how to invest in gold but this method carries a couple of risks.

Conclusion

Gold bonds, ETFs and Gold funds only give you the exposure to the commodity’s market performance. If you are picking these options, you need to be doubly sure that you do not want physical delivery of gold on maturity/redemption.