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Investing In Gold? Some Facts You Should Know Research Team | Posted On Saturday, February 16,2019, 06:27 PM

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Investing In Gold? Some Facts You Should Know



Gold is a yellow metal which is considered extremely precious. Gold is extensively used in jewelry and decoration as it is a non reactive metal with air and water. Possessing gold can be considered as a way of displaying luxury. China is the World’s largest gold consuming country followed by India.

Indians are known to be using gold ornaments since 3900 BC. Indian households are estimated to have storage of over 16,000 tonnes of gold in the form of jewelry and ornaments which roughly estimated to be about Rs 28 Lakh Crores. This is more than the double RBI’s foreign exchange reserves.

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SEE ALSO:What Is A Gold Loan?

Investing In Gold? Some Facts You Should Know

Is Gold A Good Investment Option?

Investing in gold is a very good option. Buying gold is the oldest form of investment. Having physical gold is equivalent to having hard cash as gold is highly liquid. Gold can be exchanged for cash anytime, thanks to its liquidity. Following are the major reasons why you must invest in gold:

  • Proven Hedge against Inflation: Historically, gold is a shield against inflation. Gold rate is often not affected by inflation. Hence, you don’t have to worry on losses due to inflation.
  • Wealth Creation: Accumulating gold is a form of wealth creation. In India, almost every household has gold. This gold gets passed on from generation to generation. Passing on gold to next generation can be considered as passing of wealth.
  • Tangible Resource: Investing in real estate or other investment options is considered as investing in tangible resources. Investing in gold is very easy and liquidating it, even easier.

After having read the reasons why investing in gold is good, the question arises, how can I invest in gold?

SEE ALSO:Need for a gold loan

How Do I Buy and Invest In Gold?

Following are the ways in which you can buy and invest in gold:

1) Jewelry: This is the traditional and oldest way of investing in gold. You can buy gold jewelry, ornaments, bars and coins. This method of investing in gold has a disadvantage of high cost which includes making charges and wastage. When you sell the same ornament or jewelry, the gold merchants buy it back after deducting those extra charges.

2) Investing in Gold coins and bars: Investing in gold coins and bars is a better option than investing in jewelry and ornaments as there are no wastage and making charges. Banks and jewelers sell gold coins and bars. However, banks only sell but don’t buy back. Buying gold coins and bars is a good option, as you would have physical gold in hand which is highly liquid in the market.

3) Gold ETF: Gold exchange traded fund ETF, is a mutual fund that invests in gold and units of this mutual fund scheme are listed on a stock exchange. You must open demat and trading account. Extra charges are applicable on gold exchange traded fund in the form of management fees.

4) Gold Fund of Funds: Gold fund of fund invests in gold ETFs on your behalf. In this mode of investing in gold, there is no need of opening a demat account. Investing in SIP is allowed in gold funds as it is just like any other mutual fund.

5) Equity based Gold Funds:

In this method of investing in gold, investors don’t invest in gold directly; instead they invest in companies dealing with mining, extracting and marketing of gold. The performance of equity based gold fund depends on the performance of fund house and equities they invest in.
Investing in these funds is suitable for those investors who are willing to take risks. There is no listed company in India associated with gold. Hence these funds are traded in international market and are susceptible to currency risk, apart from gold and equity risks.

After reading this, you must choose the most suitable gold investment options as per requirements.

SEE ALSO:When Should You Go For A Gold Loan?

Can Bitcoin Replace Gold

Bitcoin is a popular cryptocurrency. Cryptocurrency is a form of electronic money. It is a decentralized digital currency with no central bank or single administrator. Cryptocurrency can be sent from one user to another on peer-to-peer bitcoin network without the need for intermediaries.

Coming to the point of Bitcoin replacing gold in India, its not possible. This is because the Reserve Bank of India has banned all banks from dealing with entities involved with cryptocurrencies like Bitcoin. The Finance Minister has said that Crytocurrencies are not legal tender in India.

Indians prefer to accumulate wealth in the form of gold. Indians consider it good to transfer wealth in the form of gold from one generation to another.

Bitcoin is virtual cash. Indians are traditionally known to make monetary transactions through hard cash. Not many Indians are comfortable using smartphones and computers for monetary transactions with virtual cash. Hence, it is highly unlikely that gold is replaced with Bitcoin, at least in India.   

The Top 5 Reasons To Invest In Gold

1) Capital Appreciation: Gold is the most important hedge against inflation. Although, gold does not offer high returns, your investment is safe. Real Estate and Equity Shares may offer better returns than gold, but the risk involved is immensely high. Investment on gold comes handy when stock market is falling.

2) Risk: Investing in gold does not have much of a risk in India as deflation or inflation has minimal impact on gold. The only risk involved in investing in gold is that you may earn lower returns than other investment options that offer higher returns.

3) Liquidity: Physical gold is highly liquid. If you have physical gold, then you can exchange it for cash in a matter of few minutes in the market, thanks to its liquidity. Banks and non banking financial companies, offer instant gold loans. You can easily sell your gold at any gold pawn shop or pawn broker. Therefore, physical gold can be considered equivalent to having hard cash in hand. However, you must be aware that you would lose a considerable amount of money due to making and wastage charges.

4) Tax Treatment: Buying or investing in gold does not offer tax benefits. It is advisable to ask for a bill each time you make a gold transaction. Profits on gold are subject to capital gains tax.

5) Convenience: It is convenient to purchase and sell gold in India due to high liquidity. Gold ETFs have made it even more convenient to buy and hold on to gold, for short term gains. Establishment of gold loan companies like Muthoot, Manappuram and so on, has made it easy for individuals to avail hassle free and quick gold loans.

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