5 better ways to invest in Gold

It would be difficult to find a person who has never invested in gold. A lot of people want to get into gold investments for their own set of reasons.

A total of 186,700 tonnes of gold is in existence above ground till 2017. The world consumption of new gold produced is about 50% in jewellery, 40% in investments, and 10% in industry.(Source-Wikipedia).

Few years back when someone wants to invest in gold they always rush to their “trusted” source i.e Jewellers and invest in gold in physical format.Now a days there are so many ways to invest in gold and most of the people are stuck with so much of choices.Therefore,finding the better ways is as important as tracking the gold prices.

In this article we will see how to invest in gold in better ways and what are the pros and cons of all the options.

1) GOLD ETF

Gold exchange traded fund(ETF) is an option to invest in gold online.It is just like buying or selling stocks,you can invest in these if you have a demat account.The unit of Gold ETF is listed on stock exchange.If you already have a demat account then this will become your most convenient way.(If you don’t have demat account you can get here).The minimum quantity you can buy is 1 gram which you can buy anytime.

Example-

• Reliance ETF Gold BeES
• Kotak Gold ETF

The pros are as below-

• Safe way to invest as it was traded on stock exchange.
• No making charges and wastage as in physical format.
• Cost effective.
• No question on purity.
• Tracking is easy.

The cons are as below-

• You need a demat account to buy or sell.
• No feeling of buying gold as you cannot touch or see it.
• Liquidity issues arises some times (not in case of bigger gold ETFs).

2) Gold Fund of Funds

Gold Fund of Funds is a type of mutual fund which invest in God ETFs,companies which are related to gold related activities and physical gold in smaller quantity.You can start investing in Gold fund of funds from as low as 500 Rs. Demat Account is not required to buy or sell.Just like any mutual fund,SIP investment in gold is possible through these gold funds.

Examples-

• SBI Gold Fund
• Reliance gold saving fund

The pros are as below-

• No Demat account is required.
• Minimum amount for investment is Rs 500.
• Monthly or weekly SIP is possible.
• Option to invest Online.

The cons are as below-

• You will pay expense ratio two times because it is fund of funds.
• Mostly invest in gold related companies therefore not recommended for those who wants to track gold prices.

3) Sovereign Gold Bond Scheme

This scheme is backed by central government.As an investor you will get returns that are linked to gold prices, the scheme is expected to offer the same benefits as physical gold.Minimum investment in the bond shall be 1,10, 50, 100 grams.

You can apply for the bonds through scheduled commercial banks,designated post offices,NBFCs and from National Saving Certificate (NSC) agents.

Example-

• SBI Sovereign Gold Bond Scheme
• Kotak Sovereign Gold Bond Scheme

The pros are as below-

• Investors will be compensated by interest income at a rate of around 2.5 per cent payable half-yearly on initial investment.
• Bonds can be used as collateral for loans.
• The Sovereign Gold Bonds will be available both in demat and paper form.
• You will get the benefit based on the price movement of gold price.

The cons are as below-

• KYC is required.
• The tenor of the bond is for a minimum of 8 years with option to exit in 5th, 6th and 7th years.

4) Gold Futures

Gold futures are exchange-traded contracts in which the contract buyer agrees to take delivery, from the seller, a specific quantity of gold predetermined price on a future delivery date.

This is meant for trading and not for investment purpose.An important aspect to consider before opting for Gold Futures is that these are dated instrument which have an expiry date. These commodities stop trading before their agreed upon settlement date is reached.

Example-

• MCX Gold futures

The pros are as below-

• liquidity not an issue.
• No need of any storage.
• We can short-sell the Gold Futures.

The cons are as below-

• Gold prices can fluctuate and it is possible for an investor to lose money on his/her investment.
• Futures enabled Trading account is required.
• This option is bit more technical and one should only use it if you have decent amount of knowledge.

5) Digital Gold by Paytm

Few days back Paytm launches digital gold service by which customer can buy and sell gold through Paytm’s electronic platform. Using their Paytm mobile wallets, consumers can purchase 24K 999.9 pure gold online and store it in MMTC-PAMPs secure vaults free of charge. You can buy Gold either in grams or in rupees starting from 0.1 grams and 1 Rs respectively.You can redeem accumulated gold in the form of gold coins/minted products.