Best Ways to Invest in Gold

Introduction to Gold Investment

Best Ways to Invest in Gold. In this article, we will learn 6 ways to invest in gold. Number 1, jewellery. This is India’s favourite pastime. In fact, the data says that India has 11% of the world’s gold reserves. India has bought 11% of the world’s gold. And jewellery is a very easy way for people to start investing in gold. Gold investment strategies are essential for understanding how to maximize your returns.

Advantages and Disadvantages of Buying Jewellery

Advantages of Jewellery Investment

But there are some problems and advantages in jewellery. Let’s talk about the advantages.

• You can use jewellery as an investment.
• It is suitable for weddings, parties, etc.
• It helps present a status image.
• Benefits include emotional value and cultural significance.

Disadvantages of Jewellery Investment

But there are a lot of disadvantages.

1. Whenever you buy gold in the form of jewellery, you have to pay 10% for making charges, which does not contribute to your investment.
2. You also have to pay 3% GST, which is an additional expense if you don’t have GST input.
3. You need to store the jewellery somewhere safe, which might require a bank locker or additional security measures.
4. The biggest concern is about purity. If your jeweller is not a trusted source, how can you be sure you are getting real, hallmark gold?

Therefore, it is advisable to be cautious about investing in gold jewellery. This raises the question: Is investing in gold jewellery a good idea?

Alternative Ways to Invest in Gold

Physical Gold

Number 2, physical gold. Now you can buy actual gold bars instead of jewellery. This is far better because you don’t have to pay making charges. The purity is 99.9%, and it usually comes with a hallmark, ensuring quality. The only expense is a GST of 3%, which applies if you don’t have GST input. Additionally, there are costs related to storage since all gold purchases require secure keeping, whether it’s bars or coins. This makes it an easy investment option but may not be the smartest choice.

This leads to a variety of gold investment options in India, which can greatly vary based on the medium chosen.

Investing in Digital Gold and ETFs

The Easy Way of Investing

So, an easy way of investing, but maybe not the smartest way of investing. And to solve this, we have number 3, digital gold.

Platforms for Digital Gold

• There are many platforms for digital gold that provide the option to buy digital gold, meaning you won’t keep it in your physical possession.
• Digitally, it works like money in your wallet; your funds are stored in your bank account.
• You can transfer it using UPI, NEFT, or credit cards.
• For example, Tanish is a platform where you can buy digital gold, and I will mention several brands in this article.

Brand Mentions (Not Sponsored)

• None of these brands have paid me for this mention; all this is organic.
• Please don’t look at it as financial advice.
• Tanish allows you to purchase digital gold from an ATM.
• JAR is an app that rounds up your spending and invests the excess in digital gold.
• These are some of the ways to buy digital gold.

Costs of Buying Digital Gold

• The primary cost associated with digital gold is GST, which is 3%.
• Since these platforms need to make a profit, there’s often a difference between the market price and the buying/selling price, usually around 5-6% higher.
• The best part is that purity is guaranteed because it is digital.

Benefits of Digital Gold

• There are no storage charges, so you won’t have to worry about theft or where to keep it.
• You can sell it at any time.
• The most important thing about digital gold is that you can start buying with a very small amount, as low as Rs. 100 or Rs. 500, making it similar to a mutual fund.
• This means that you can invest small amounts regularly, like Rs. 500, Rs. 1,000, or even more, without the need to own physical gold. It’s all managed in a digital account.

ETFs: Another Way to Invest in Gold

Next, we have number 4, ETFs. There are many gold ETFs listed in the stock market. To purchase them, you need a Demat account. If you have a Demat account, you can invest in any of these ETFs.

Examples of Gold ETFs

• You can see various gold ETFs on platforms like Money Control, showing their market caps and performance.
• The Invesco gold ETF appears to be one of the largest options available.
• Again, this is not a recommendation; please consider doing your own research before investing.

Gold Investment Strategy: How ETFs Move with Gold Prices

Understanding ETFs

ETFs (Exchange-Traded Funds) are a strategic way to invest in gold, as their value fluctuates in direct correlation with gold prices. When you invest in an ETF, you are not purchasing physical gold; instead, you are acquiring a traded fund that is pegged to gold, listed on the stock market. As the price of gold increases or decreases, the value of your ETF investment will also rise or fall. This allows your gold investment to be represented as a stock market instrument, making it accessible and easy to trade.

ETF Costs and Benefits

• The cost of investing in ETFs is typically low, usually ranging between 0.5% to 0.6% of your total investment.
• For instance, if you invest Rs. 100 in an ETF, approximately Rs. 99.50 will be allocated to purchasing actual gold, while around Rs. 0.50 will cover ETF maintenance costs.
• Although ETFs do not provide the physical nature of gold, their purity is guaranteed.
• The liquidity of ETFs is excellent; you can buy or sell them on stock market days, making them a powerful investment option.

Gold Mutual Funds

Overview of Gold Mutual Funds

Moving on to number 5, if you’re familiar with mutual funds, you can consider gold mutual funds. Various mutual funds focus primarily on gold investments, including brands like Axis, Kotak, SBI, and HDFC. These mutual funds invest predominantly in gold or gold-related assets, providing an indirect method of investing in gold.

Mutual Fund NAV and Costs

• As gold prices rise, the value of gold mutual funds will also increase. However, you are not directly buying gold but investing based on the mutual fund’s NAV (Net Asset Value).
• The NAV reflects the mutual fund’s price, which adjusts with changes in the price of gold. Thus, the increase or decrease in NAV represents your gold investment’s value.
• The costs associated with gold mutual funds typically range from 0.6% to 1%, depending on whether you purchase directly or through an agent. If bought through an agent, the costs can be higher, around 1% to 1.2%, due to commission fees.

Buying Mutual Funds Directly

It’s advisable to buy mutual funds directly from platforms like Grow, Zerodha, or others, as this eliminates agent commission fees. While the expense ratio for gold mutual funds remains about 0.5% to 0.6%, purchasing directly ensures you avoid extra costs associated with intermediaries, making it similar to ETF charges.

Sovereign Gold Bonds (SGBs)

Introduction to SGBs

And then finally number 6, which in my opinion is the best way to invest in gold, are called SGBs or Sovereign Gold Bonds (SGBs). This is issued by the Indian government, typically 3 to 6 months, and this is backed by the government of India. So it is very secure. Hopefully, there will be no loose ends.

Appreciation and Interest

• The best thing about this is that you will definitely get appreciation or depreciation of gold.
• If the price of gold increases, then you will definitely get appreciation.
• On top of that, you will get 2.5% extra per year.
• Which means, suppose in 5 years, gold has increased by 5% on average every year. So at the end of those 5 years, you will get 5% gold appreciation plus 2.5% from the government. So you will get 7.5% appreciation for 5 years. And that is a great way for you to buy gold. Because again, you don’t have to store physical gold anywhere. There are no charges for it. It is directly what the bond is. A lot of RBI issued bonds.

Investing with Vint

And this is also a good way for you to invest. There is a company called Vint. Disclaimer: I am an investor in Vint. So whatever I say, please take it with a pinch of salt. Because my incentive is aligned with Vint. But I believe that they do some really good work around corporate bonds.

Product Launch

They have recently launched a product around SGB as well, which is what I wanted to share. Vint has not given me any money to make this article. But I am an investor in Vint. So that disclaimer is extremely important for you to recognize. If you want to invest in SGB from Vint, then you can only do it through Zerodha.

Top SGBs Available

For example, you can see that the top SGBs available are still live. These are their names, their maturity of SGBs, and they will then select which is the best one that you can apply for. You can go through that journey. It’s exactly like buying an SGB. But you are purchasing through Vint instead of a primary purchase which is the only difference out there. They have some nifty things like getting notified when your deal comes online. So you are targeting a specific rate of return for SGBs. So you can do it through that. And the way it will work is exactly like buying a stock, as you can see on your screen.

Taxes on Gold Investments

Overview of Taxation on Gold

Now let’s talk about the expenses of taxes. I have already talked about taxes. In gold, taxes are known as long-term and short-term capital gains. They are not known; they are just used. For gold, the definition of long-term and short-term is 3 years. So if you buy gold and sell it within 3 years, then it is considered short-term, and its short-term capital gains are applied. If you sell it after 3 years or more, then it is considered long-term.

Short-Term Capital Gains

• Short-term capital gains, whether it is a mutual fund, your ETF, or physical gold, all those capital gains—the price at which you bought or sold it, the difference is considered a capital gain.
• On that, as per your income tax slab, you have to pay capital gain tax.
• If you sell it after 3 years, then irrespective of your income tax slab, you have to pay capital gain tax on 20%. The good thing about Sovereign Gold Bonds (SGBs) is that after 5 years, usually, the maturity of SGB is 8 years. But if you sell your SGB after 5 years, then you don’t have to pay any capital gain tax. So that’s even more cost-efficient because you are getting gold appreciation and you are getting 2.5% per annum extra, plus you don’t have to pay any capital gain tax.

Tax on 2.5% Returns from SGBs

The only tax you have to pay is on this 2.5%, which the additional government is giving you because you have got it almost as free. So you don’t have to pay any money, but the 2.5% you will earn over the period of your holding, you have to pay tax on that as per your income tax slab.

My Personal Investment Approach

So these were the 6 ways through which you can invest in gold. This articleis not to explain why you should invest in gold. This is only for those who want to invest in gold. Personally, I don’t invest in gold, and that’s a disclaimer.

Preference for Other Assets

I think there are better assets in which I can invest my money. So I would much rather do that. My current investment is 35% in the Indian stock market, 35% in the US stock market, 10% in crypto, in which only 3 coins: Bitcoin, Ethereum, and Solana, and 20% in startups. This is how I invest all my money. So almost all of it is in stocks, crypto, or startups. I haven’t invested anywhere else, whether it is real estate, gold, fixed deposits, or nothing else. That is just my principle.

Risk Profile Consideration

My risk profile, as per your risk profile, please choose your instruments and invest accordingly. I hope this was useful.

Conclusion

Investing in gold offers various avenues tailored to individual preferences and risk profiles. From traditional methods like jewelry and physical gold to modern options such as digital gold, ETFs, and Sovereign Gold Bonds, each method has its unique advantages and considerations. While jewelry provides emotional and cultural value, it often comes with high making charges and purity concerns. Physical gold assures quality but requires secure storage. Digital gold and ETFs present easy and liquid alternatives, allowing for small, manageable investments without the need for physical possession.

Sovereign Gold Bonds stand out as a secure investment backed by the Indian government, offering both appreciation potential and regular interest. It’s essential to consider the associated tax implications of gold investments, especially distinguishing between short-term and long-term capital gains.

Ultimately, the best approach to gold investment will depend on personal financial goals, risk tolerance, and market conditions. As with any investment, it’s crucial to conduct thorough research and possibly consult with a financial advisor to determine the most suitable strategy for your financial future.