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Gold Investment in India - How to Invest, Options, Benefits Research Team | Posted On Friday, October 04,2019, 04:44 PM

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Gold Investment in India - How to Invest, Options, Benefits



Indian is among the leading consumers of gold. Indians buy gold since it is considered one of the safest investment options that have a consistent market presence. Gold should be an important part of every investor’s portfolio as it serves to mitigate the share market risks. It is one of the most trusted forms of investment in India as it helps you to generate good returns on your investment in the long run. However, the main question remains. Is it profitable to invest in gold? Let’s try to analyze.

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Why Should You Invest in Gold?

Investors often take into account aspects like safety, liquidity and returns while investing. This statement answers the most basic question as to why we should consider investing in gold. The gold investment allows you to get safety and liquidity. When speaking about returns, investment in gold has always fetched better returns to investors.

Let’s take a look into some of the reasons and try to understand why investing in gold is beneficial:

  • Tangible asset: gold is preserved in the form of a physical asset. Since gold is tangible it does not comes with the risk that is generally carried by paper money/certificates. It can be preserved and passed on for generation without being affected.
  • Gold is a liquid asset: You can easily convert your gold into cash whenever needed. It does not involve any paperwork or any intermediaries. You can readily get cash by selling your gold.
  • Investment in gold helps you to avoid financial disasters. If you are an avid investor of equities then you must have a portion of your investment in gold. The price of gold is inversely related to the equity market. It is observed that gold investment performs well when the share market crashes.
  • Investing in gold helps you to beat inflation. Over the past few years, gold has performed consistently well. The value of gold does not fall drastically in the market unlike stocks and thus it helps gain good returns in the long run.

See Also: 10 Reasons for Investing in Gold Bullion

How to Invest in Gold?

Traditionally investment in gold meant purchasing ornaments or gold bullion. However, with time the forms of gold investment have changed and now people also invest in gold funds and gold EFTs besides physical gold.

Here are some ways in which you can invest in gold:

Buying Gold:

Buying physical gold includes buying ornaments, gold coins and gold bars. Buying ornaments has its share of disadvantages as it overall cost involves making charges. The main benefit of investing in physical gold is that you can make a direct purchase without any paperwork. You do not need to open a Demat account as well. However, you have to submit your PAN card for purchasing gold above a prescribed limit in a year.

Equity-Based Gold Funds:

Investment in equity-based gold funds is made in gold bullion and companies involved in mining gold. Though you do not have to open demat account to invest in these funds, you must pay a fund management fee. The funds are directly affected by changes in the gold prices. It is also susceptible to market fluctuation and equity-based risk. Investment in such funds is best for investors who can get higher gains by taking a calculated risk. 

Gold EFT:

Gold EFT refers to a type of mutual fund that invests in gold. The units of the gold exchange-traded fund are listed in the stock exchange. To invest in these funds you need a Demat account and you have to pay brokerage charges as well as the fund management charges. This type of investment is best suited for investors who have the required knowledge and skillset to trade.

See Also: Investing In Gold - 7 Facts You Should Know

What are Gold Funds?

A gold fund is a mutual fund or in exchange-traded fund that invests predominantly in gold bullion or gold producing companies. The main objective of this fund is to generate higher returns from gold investment in a convenient manner. Benefits of investing in gold funds are as follows:

  • The investors can invest in gold and generate better returns
  • Investors can enjoy the benefits of the potential value of gold without possessing any physical gold.
  • gold funds is an ideal investment to hedge the geopolitical instability and inflation
  • It helps you to diversify your investment portfolio.
  • can be considered a safe investment option as gold prices do not fluctuate too often
  • Gold funds invested for over a year can reap capital gains over the long term.
  • These funds do not qualify for wealth tax or securities transaction tax.
  • gold funds as a bet against z falling currency

See Also: Investing In Gold? Some Facts You Should Know

Gold Investment vs Mutual Funds:

The gold investment proved remarkable from the year 2006 onwards. If you notice the trends this year, gold has been performing consistently well from June. It took domestic prices up from Rs 33,000 levels in June for 10 grams to lifetime highs of Rs 40,000 in September. 

So it is safe to say that investing in gold, in any form is profitable. However, these are certain pros and cons of these investments that will clarify which form of investment is better:

  • Physical gold is highly liquid and can be easily converted into cash. Mutual fund EFTs are an investment where the fund pools money from investors and invest in gold bullion or oil-producing companies to give good returns.
  • Physical gold can be stored and managed by the buyer only whereas gold funds and gold EFTs are professionally managed by experts to reduce risk and maximize returns.
  • Investing in gold EFTs is affordable and you can invest a minimum of Rs. 1000 whereas physical gold depends on the market rate which currently stands at Rs. 39,000.

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