Are you tired of keeping track of stock prices and the downfall that can fetch you huge losses? Why don't you invest in Gold? Maybe you are not aware of it or maybe you don't know how to invest in Gold. Here we are with beginners guide on how to invest in Gold in 2019
We have always experienced t5he cross trend between the stock market and Gold prices. Whenever stock prices or indexes in the share market rise gold prices are down and vice versa. There is a big theory behind this. Let's suppose you are a regular investor or trader in the stock market. And, all of a sudden you experience a downfall in the stock market. Nifty is down, SENSEX is decreasing continuously. What would you do now?
As a rational investor, you are supposed to withdraw your funds from the stock market and now since you have funds you must be looking for an option to invest. After the stock market, Gold is considered as one of the most viable and profitable options. So, we assume that you would opt to invest your money in mint gold coin. And, if more and more people are going to do this, the demand for Gold will rise automatically. And, since we have more demand than the supply, prices tend to shift higher.
Gold vs Jewelry
First things first when we talk about Gold, it's not about jewelry. Jewelry is something you buy to decorate yourself or simply you are going to use it. And, that is not investment, right?
Jewelry includes almost everything that one buys for his/her personal use. While investment is quite different because if you purchase anything as an investment you are looking to sell it when the time is right. But that does not happen with jewelry as you are spending a lot of money in the form of making charges and pay for the gold. There is a huge market for jewelry designing too and they all are making money just because you are buying gold as jewelry.
So, it has to be clear that jewelry is not considered as an investment in Gold.
How to Invest in Gold
1. Gold Coins
Gold coins or Gold bars are a very popular form of investment in Gold because of simplicity. These gold coins are simple coins for different weights and they are made of real gold. So, if you are buying gold coins that mean you are actually buying gold because you can see it in front of you and you actually possess it. You can buy any size of the gold coin depending upon the rates of gold in the market. There are some making charges involved in the gold coins. This may go from Rs 100-1000 depending upon the size of gold coins.
Gold coins are very popular and they are even used as jewelry too. But only a rare species of humans use gold coins as jewelry but it used to be back in the past. People used to wear coins on their neck with some chains or threads. But, it's not happening now so we consider it as an investment only.
So, if you are buying gold coins we assume that you are ready to sell it when the ti,e comes or maybe you are just keeping your money in the form of gold. The good thing is that anyone can buy gold coins from any bank or jewelry shop and even sell it anywhere. There is physical gold in front of the eyes and this is a problem too as you have to take care of coins. Either you can keep it in your home or get a locker somewhere. And, if you are hiring a locker so you should be ready to pay charges for a locker too.
2. Gold ETF
Gold ETF stands for Gold Exchange Traded Funds. It sounds like a mutual fund but its not. It just has the named fund in its name because it's a traded fund, not the actual gold. So, you are just trading in the funds for gold and making an investment.
Gold ETF is listed on the Stock exchange from where you can buy it and sell it. Yes, you cannot buy an ETF from a bank or jewelry shop. You need to have a Demat account and buy it from the stock exchange directly. So, it's totally open to almost everyone. You can buy it anytime from anywhere and sell it the same way. And, there is a minimum price too which equals 1 unit. So, you have to buy a minimum of 1 unit of gold meaning 1 gram of gold to trade.
The NAV of your gold depends upon the actual gold prices in the market. NAV is the Net Asset Value that is the actual value of gold that you will buy reducing expenses and charges. And yes the expense ratio is about 0.5 to 1% to manage the expenses because there is stock exchange and funds to be managed.
Gold ETF is absolutely the best option to go with as it has liquidity in its top priority. You can buy and sell anytime you need funds. And, since there is no physical gold involved so you don't even need to worry about safety measures.
3. Gold Mutual Fund
Gold Mutual Funds are very similar to Mutual Funds. The only difference is that here you are investing in gold instead of securities. Yes, in mutual funds your money is invested in shares and debts depending upon your choice and expected returns. But, in case of Gold Mutual Funds you are investing in gold.
Now, one question is what is the difference between ETF and Gold Mutual Funds?
The difference is that you can make a systematic investment plan with the SIP System. Suppose you have a goal of having ten lakhs rupees after two years. To achieve that you can make a SIP and start investing a fixed amount of money every month in Gold. And, at the end of the stipulated period, you will have your money in the form of gold.
Here the expense ratio is a bit higher than Gold ETFs because of the monthly plans. And, there are some mediators involved too which raise your expenses of investment. There is no physical gold heer too.
Gold Mutual Funds are best for those who have a particular goal and want to make a monthly investment. Transactions are done through Demat account but it's not compulsory to have it.
4. Sovereign Gold Bond (SGB)
Sovereign Gold Bonds or popularly known as SGBs are not quite old and not even so new because these were launched in the year 2015 by the Government of India. Yes, these are backed by Government so you don't have to worry about the safety of your funds because Government is always there.
These are Government security bonds issued by the Central bank of India that is Reserve Bank of India. Central bank brings up the SGBs after a certain period and you can buy these bonds through the bank, post office or STOCK HOLDING CORPORATION lIMITED (SHCL). You can buy it when they are issued or from the stock exchange too. But that would depend upon the chance of you getting them on stock exchanges these are rarely seen traded.
The best thing about SGB is that you get an interest of 2.5% on these twice a year. So, you are making double income via these bonds. On one hand, you are getting the change in prices by selling and on the other hand you are also getting the interest in holding them. And, one more benefit is there from the tax point of view which is mentioned below.
There are a few limitations too, first being the minimum and maximum limit involved. You can buy a minimum one unit equal to one gram of gold and a maximum of gold equal to 4kg in weight is permitted. Also, there is an 8 years maturity period for these gold bonds and a 5 years lock-in period. The liquidity is quite low as nobody is ready to sell them once they have it but still, SGBs are the best way to invest in Gold.
5. Digital Gold
Digital Gold is the pretty recent term coined in the market where you can digitally buy gold of any value. You can buy and sell gold using mobile wallets like Paytm, Phonepe, Google Pay, and Mobikwik. Now, you know how easy it is to buy and invest in gold as you can do it with a few clicks only from your phone.
There is no minimum limit to buy on gold. You can invest in gold for as low as Rupee 1 and you will still get the gold. It is for those who cannot even afford a SIP in Gold Mutual Funds but still, they want to invest in Gold.
There is a limit too that you can convert your gold into cash after a certain period of time which goes up to 8 years. And, at that time you can either choose to accept cash or gold only. It's totally up to you.
The best thing is that you can always invest in gold from your mobile wallets where you have leftover money and it's totally wasting theirs. And, you can do it from the ease of your time and location.
Taxation for investment in gold
So, every time you buy and sell gold there is some sort of taxation and Government regulation is involved. Whenever you make a purchase of Gold from anywhere you have to pay a GST of 3 percent. This is not applicable in case of Sovereign Gold Bonds So you can freely buy these bonds. And when you sell it depends upon the time you have held them.
As we mentioned above Sovereign Gold Bonds are exempt from taxation So that is the benefit with SGBs. And investment in Gold is considered as an investment in the eyes of law too. So, if you sell your gold before 36 months of holding them then the proceeds of earnings are included in your income for the year and you will be charged income tax based on your slab of earnings for the year. This applies to all types of investment in gold.
But, if you sell your gold after holding it for a period of 36 months then the earnings are charged a tax of 20% plus 4% cess with indexation. Indexation is something that you are given the benefit of for the inflation value.
Which one is best for you?
SGBs are quite good as there is no charge involved at the time of purchase and you are also getting interested in the time held. You can also use SGB as collateral for the loan. And, the tax benefit is also there because there is no tax charged for the earnings for the time period.
On the other hand, you can also go for Gold Mutual Funds and Digital Gold too. Mutual Funds are a great way to make savings with a goal and digital gold is always there to invest petty cash available at your disposal.
And, then Gold coins and Gold ETFs are always there. As a rational person, people tend to get attracted to Gold coins because of physical access. And, then Gold Bonds issued by RBI have quite demand in the market now.
So, if you are looking to invest in gold then your absolute choice could be ETF or Mutual Funds depending upon your requirement and amount of money to be invested. Having a goal is always good and Mutual Funds could be the best way to achieve those goals. But, if you are someone who does not have a lot of money or has a very low amount of money to invest then you can always invest in digital gold from the ease of your phone only.
Which is your favorite way to invest in gold?
