Long gone are the days when gold jewellery was the only common gold investment option in India. Modern millennials are looking for other ways in which they can invest their hard-earned money in gold. In this guide, we will help you understand how to invest in gold in different ways, the list of documents you will need, and the benefits of investing in gold in India.
How to Invest in Gold?
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Physical Gold
Also known as gold bullion, physical gold is the best form of direct gold ownership. Investing your money in gold bullion refers to purchasing gold bars, coins, or ingots.
While physical gold is 99.5% pure, its advantage is what makes it an illiquid asset to invest in. The heavy sight of gold bars is a delight to look at, but it is difficult to sell and buy as they are costly. But the same cannot be said about other smaller types of gold bullion like gold coins or smaller-sized bars.
Gold investors who look forward to investing in physical gold generally choose gold bullion that is comparatively smaller in size, like smaller-sized gold bars or coins, as they are more liquid.
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Digital Gold
Digital gold is the digital form of gold you can buy and sell through online investment platforms. As opposed to physical gold, digital gold is easier to manage because you do not have to physically manage and store the gold.
But if you cannot hold the asset physically, how can you be sure that the gold belongs to you in the real world as well? While digital gold is owning the asset on online platforms, it is backed by physical gold. So every digital gold unit you purchase, there is an equivalent of the amount in physical gold format securely held in a vault by the provider. This gives you an assurance that your investment is real and backed by tangible assets.
Thinking of investing in digital gold? Freo Gold gives you an easy and safe way to invest 24K pure gold, starting with just ₹10. Right from your phone!
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Gold ETFs (Exchange-Traded Funds)
Gold ETFs are the simplest forms of digital gold. These are funds that you can invest by buying and selling gold stocks on stock exchanges just like how you invest in individual stocks.
How to invest in gold ETF? You need a Demat account to get started.
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Gold Mutual Funds
There are several mutual funds with gold companies and gold bullions in their portfolio, but only a few mutual funds have gold commodity as their sole focus. While you can invest in mutual funds that have gold as one of their commodities, it all narrows down to the advantages gold mutual funds provide, including:
- Low minimum investment requirement
- Low cost
- Easy brokerage account ownership
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Sovereign Gold Bonds
This type of digital gold is issued by the Reserve Bank of India, making it the safest choice for gold investment. You get an interest of 2.50% annually on the sovereign gold bonds. They are denominated in units with the basic starting from 1 gram unit of gold and a maximum of 4 kg of gold.
The tenure of these bonds lasts for eight years where you get an option to exit from the fifth year of investment.
Documents Required to Invest in Gold in India
You will need to arrange documents according to the type of gold investment you want to make:
- For physical gold: PAN card
- For gold ETFs: Open a Demat account with a brokerage firm
- For sovereign gold bonds: KYC documents like a PAN card, Aadhar card, Passport, or Voter ID
Why Should You Invest in Gold?
For an investor looking for safety with the option of liquidity and profitable returns, gold is seemingly the standard commodity to invest in. While some consider gold investment to be volatile, it is still the safest investment option out there in uncertain markets. Call it an investment that beats inflation time and again with excellent liquidity for investors!
Note that no investment is completely risk-free. Yes, some can be of lesser risk, but never risk-free. Gold investment is no exception.
FAQs:
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How to invest in gold for best outcomes?
This entirely depends on the outcomes you are aiming for. For example, for investors who want large exposure and are willing to pay the premium price of buying and storing, gold bullion is great for them. But for investors who want a low minimum investment and low-cost exposure, gold mutual funds and ETFs are a better option.
Gold jewellery is also an ideal investment option in India, but remember it is less likely to give you any investment profits.
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How to invest in gold for beginners?
If you are a beginner to gold investments, gold ETFs and mutual funds are a great option for you. Buying and selling gold stocks through these digital gold buying options is easy and can be done with your brokerage account. Not to forget, these digital gold types have low minimum investment cost requirements.
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Can I invest in gold during a recession?
It all boils down to your investment strategy. Historically, gold has increased when bond yields take a dip, making it an appealing choice during a recession. But you should carefully consider other factors like your investment goals for the future.
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How pure is 24k gold?
24k gold means 99.9% of it is gold and the rest 0.1% is other metal mixed. Below is the purity scale of gold:
- 9K = 37.5% Purity
- 12K = 50% Purity
- 14K = 58.5% Purity
- 18K = 75% Purity
- 22K = 91.6% Purity
- 24K = 99.9% Purity
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How can I diversify my portfolio with gold?
Gold is considered to be a hedge against inflation as you will not see major swings in gold stocks even when the stock market is at a volatile stage. It helps in diversifying your risk as many investors will park their money in gold investments to prevent their investment value from eroding.
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Can I convert the sovereign gold bond holdings into physical gold?
No, you cannot convert your sovereign gold bond holdings into physical gold because the redemptions are done in Indian currency.
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What is the import duty on gold?
In India, gold import duty is an indirect tax levied by the government on imported gold, ultimately affecting the cost for consumers. At present, the basic import duty on gold is set at 10%. When combined with other charges—such as the 3% GST and a 5% AIDC cess—the total tax burden on gold adds up significantly.
