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Tips to invest in Gold
1) Jewellery buying
Our age-old and traditional way of investment is jewellery buying where one can buy gold ornaments, bars or coins. However, it has its own disadvantages, total buying cost involves heavy making charges (it can be 10 to 20% of total cost).However, when you try to sell the same piece to same jeweler, he will buy it below market rates and deduct those making charges from the total price of your jewel.
2) Investment in Gold Coins and Gold Bars
Investment in gold coins and bars is also a better option over jewel buying. You need to decide on ‘Where to buy gold coins or bars?”. You should buy gold bars and coins only from jeweler. Banks also sell gold coins or bars. Then why do we advocate for buying god bars and coins from jewelers? To answer this question you ask yourself “How to sell gold coins or bars?” or “Where to sell gold coins in India?”
Banks sell gold coins and bars, but they cannot buy it back. Whereas, the jewelers can buy back the gold coins from you.
How to invest in Physical Gold? The point 1) and 2) could have proved that it is better to invest in the physical gold by way of gold coins or bars sold by the jewelers. In the next points 3) and 4) we will discuss about the paper gold investment options in India.
3) Gold ETF:
What is Gold Exchange Traded Fund? Gold exchange traded fund is a type of mutual fund which in turn invests in gold and the units of this mutual fund scheme is listed in the stock exchange.
How to invest in Gold ETFs in India? You need to buy Gold ETFs from the stock exchange by way of opening a demat account and trading account. You have to pay brokerage fee (which is generally between 0.25% to 0.5%) for buying and selling of these Gold ETFs. You will have to further pay 0.5 to 1 % charges as fund management charges.
4) Gold Fund of Funds:
What is Gold Fund? Gold fund is a Fund of Fund which will invest in Gold ETFs on behalf of you. Best part here is that you do not require holding any demat a/c here.
Then how to invest in Gold mutual funds? Just like investing in other mutual fund schemes. As this is like any other mutual fund scheme, SIP investment in gold is possible through these gold funds.
Still buying Gold fund of fund is little expensive option, as you have to pay
1) Annual management charges for the underlying Gold ETF
2) Annual management charges of Gold FOF Scheme
5) Equity based Gold Funds:
Here these funds are directly not investing in Gold but investing in the companies, which are related to the mining, extracting and marketing of the Gold. Besides, its performance is purely dependent upon the performance of the fund house and the equities they are investing.
In the other 4 options, your investment performance will be directly linked to the price movement in gold.
However, investment in these funds is suitable for investors with high-risk appetite.
- As these are equity-based funds, equity risk is there.
- There are no listed companies in India associated with Gold. Therefore, these funds trade in international market and quiet susceptible to currency-risk apart from gold-risk and equity based risk.
Therefore after assessing or weighing pros and cons of each gold investment option, one can conclude that Gold ETFs and Gold Funds are safest, profitable and most preferred options among the various alternatives.
Happy Investing!!
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