Few Years back Gold Investment in India is the most popular investment idea. At least in the last couple of years trend has been change and this has been proven. It’s almost like a real estate area. Conversely, although selective and risky, like various savings schemes that offer a steady income, options such as capital markets, which offer higher returns in the short term, have become the preferred choice of investors.
From 2006 to 2011, the picture was that investment in this sector was profitable. During this period, the annual return on investment in gold has been 29 per cent. The long-term return is less than 10 per cent per annul. However, compared to inflation, this rate is very low!
Gold Price History in India From 1965 to 2020
| Year | Price (24 karat per 10 grams) | % Gain/loss After Every 5 years |
|---|---|---|
| 1965 | Rs.71.75 | |
| 1970 | Rs.184.00 | +156.44% |
| 1975 | Rs.540.00 | +193.47% |
| 1980 | Rs.1,330.00 | +146.30% |
| 1985 | Rs.2,130.00 | +60.15% |
| 1990 | Rs.3,200.00 | +50.23% |
| 1995 | Rs.4,680.00 | +46.25% |
| 2000 | Rs.4,400.00 | -5.98% |
| 2005 | Rs.7,000.00 | +59.10% |
| 2010 | Rs.18,500.00 | +164.28% |
| 2015 | Rs.26,343.50 | +42.40% |
| 2020 | Rs.46,830.00 (Price on 01-06-20) | +77.42% |
What are the 5 Ways of Gold Investments?
In India gold is not considered as a metal but it’s considered to be rich and very auspicious. Gold has a special significance in Indian society and culture.
Every Indian family buys a small amount of gold. It is considered inauspicious to resell gold once purchased, so Indians have large gold reserves compared to other countries. Due to this habit of Indians, the price of gold has been increasing year by year.
In the past, buying gold jewelery was the only option available for investing in gold. But now there are 5 simple options that we can invest in gold.
Lets’ See,
1. Jewellery
Although jewellery is also considered a hobby, these types of small and large items are often purchased with this return in mind. However, jewellery is made and when it is purchased, it is subject to design charges. Then you have to pay ten to twenty per cent more than the original precious metal. Often this amount is added to the price of the jewellery.
Note: Buying Jewellery for the purpose of investment is not a good idea. There are other good ideas for invest in gold.
Disadvantages
- Risk of Theft.
- Not perfectly correlated with spot gold price.
- Heavy making charges.
2. Gold Bras and Coins
Gold coins and bars are a better tool than just buying jewellery if you are looking for options as an investment. You can buy it from goldsmiths or from commercial banks. If you want to sell these tools, you can’t go to the banks.
Saraf is the only option for that. There is also a small amount of extra money on top of the original precious metal. However, its proportion is very small.
Note: Buying Gold coins and bars is better than buying jewellery but remember buying gold in physical form has its own disadvantages.
Advantages
- Bar and coins are highly collectible and easy to pass down the generation.
- Easy to buy and easy to sell.
- Direct Ownership.
Disadvantages
- There is always the fear of gold being stolen.
- Purity of gold is always a big concern.
- If you buy a lot of gold, you can’t keep it at home or in the office, so the bank lockers have to be rented.
3. Gold ETF
Like a coin or a bar, it is also a safe, non-metallic option. Like mutual funds, it is in unit type. It can also be listed on the capital market as a stock of companies.
Demat account is required and 0.25% to 0.50% brokerage charges for transaction. Gold ETFs are charged at the time of purchase or sale, with a fund management fee ranging from half to one per cent.
Gold Exchange Traded Funds is the full form of Golf ETF. By trading in Gold ETFs, you can take advantage of price fluctuations without physical delivery of gold.
Advantages of Gold ETF.
- Low Brokerage Charges.
- Easy Transactions.
- Very Simple Trading
- There is no reason to worry about the purity of gold.
- Tax Benefits.
- Governed by sebi regulations.
Disadvantages of Gold ETF.
- Demat Account is Must.
- Short period of contracts.
- No Physical possession.
4. Gold Funds
This is the type to be invested in Gold ETFs. Of course, your typical investment is in such a fund. On your behalf, the fund is investing in the respective Gold ETFs. You do not need a demat account here.
Popular SIP investments in mutual funds are also possible here. It can be a little expensive. For that you have to pay annual management fee for the plan (Gold ETF and Gold FOF).
Advantages of Gold Funds
- No demat account required. (Demat mandatory for Gold ETF)
- Systematic investment plans (SIP) available.
- Funds are handles by experts.
- Small investment plans are available.
Gold Funds Related to Gold industry Shares
Here the fund does not invest directly in gold. So it happens in the relevant field. These are mining or gold producing companies, gold selling or marketing organizations.
The risk is higher in this option as your investment in other investment options is directly or indirectly in the gold metal type. Because you want to invest by studying or knowing the area.
This investment is risky as stocks are involved. Currency stability is often taken into account as companies in this sector operate internationally.
Gold ETF vs. Gold Mutual Fund
Gold ETFs require a demat account and a brokerage fee. Additional charges from the Gold Fund of Funds are levied on Gold Mutual Funds. In this case, if you are buying gold mutual funds in small quantities, then right. Otherwise you will have to compromise with the broker to reduce the charges for more funds.
| Gold ETF | Gold Mutual Fund | |
|---|---|---|
| Demat Account | Yes | No |
| Tradeble in Market | Yes | Yes |
| SIP Returns | No | Yes |
| Charges | Expense Ratio, Brokerage Charges, Demat AMC. | Expense Ratio, Expense ratio of underlying gold ETF |
| Investment Type | Easy mode of investment | Easy mode of investment |
5. Sovereign Gold Bond Scheme
Large imports of gold put a strain on the government’s coffers in the form of a fiscal deficit. Also, a few tonnes of gold is lying in the homes of many consumers in India.
India is the world’s second largest gold importer after China. In 2019, the country imported about 1300 tonnes of gold, while today’s market value of domestic gold is said to be more than the government’s budget for the new financial year (Rs 45 lakh crore).
Despite the low price of the precious metal in the last few months, gold has continued to attract Indian investors.
The government introduced the Sovereign Gold Bond Scheme last year with the aim of sustaining the precious metal economy and benefiting buyers with attractive returns.
Features of Sovereign Gold Bond
- Minimum Investment: 1 Gram
- Maximum Investments: 500 Grams
- Interest: Fixed 2.75% Payable every 6 months.
- Terms: 8 Years with exit options 5th, 7th, 8th also.
- Trading Exchange: NSE & BSE
- Availability: Paper + Demat form
- Benefits: Capital tax exempted on redemption
- Risk Factor: No physical delivery so no risk.
Also Read: 2o Golden Rules for Online Trading
Concept of Sovereign Gold Bond
This paved the way for profits in proportion to the value of gold. This new medium became available for trading in the market like gold as well as all parts of the world.
The bonds issued by the Reserve Bank were made available through various commercial banks, non-banking financial institutions, National Savings Certificates (SSC agents).
Every resident Indian can buy a minimum of 1 grams to a maximum of 500 grams. These bonds weighing 5, 10, 50, 100 grams earn an annual interest of up to 2.75 per cent. The investment is worth at least eight years and the only way out is after the fifth year.
The plan came into effect last year after it was announced in the 2014-15 budget. In November 2015, more than 62,000 people participated in the first phase of the scheme. They invested Rs 246 crore through 916 kg of gold.
Advantages Sovereign Gold Bond
- Guarantee Returns
- Capital gain + Interest Income
- No LTCG tax on redemption
- low Investment plans.
- Zero expense changes
Disadvantage Sovereign Gold Bond
- low Liquidity.
- 5 year lock in period.
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