Gold Investment: What | Why | Pros and Cons | Schemes | Returns

Introduction

Gold prices are soaring like anything over a span of 12-15 months owing to Corona pandemic, US-China trade relations and even there is a big question mark on the economic recovery making gold the most attractive form of investment in this tense economy.
Since gold has delivered very high returns in its asset class so gained lots of traction among the investors.

What is gold investment in India ?

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Well, for Indians gold is one of the precious metals and the highest preferred form of investment. Due to its high liquidity and inflation-beating capacity,
it works as a tool to tide over financial difficulties during an emergency.
Over the years buying gold is considered the safest form of investment and provided financial support in times of need.

In Indian families, there is no right or wrong time to buy gold as it’s a need-based purchase rather than invest based.
In our country, gold is having the highest consumption as people tend to gift this precious metal during marriages and women buy in the form of ornamentals so that same can be used during the marriage or in difficult times.

Why gold investment ?

Gold acts as best diversified in one’s investment portfolio and helps in mitigating losses during market stress. At times, prudent investors avoid Gold investment due to its inert properties and do not earn any interest over a period of time, but I totally disagree with this fact as it is considered the most respected metal across the world due to its value and rich history.

Advantages

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Let’s discuss why to invest in Gold where we would be covering its advantages of investing in gold:

High Liquidity: Due to its high liquidity nature, it’s considered the safest form of investment as during the time of need there is no need to get in any contractual obligation to sell gold as happen in case of real estate dissolution.
Provide hedge against inflation: Well gold has the ability to beat inflation over a period of time. For ages gold prices have increased hardly, we see any downturn in this metal price.
Tangible Asset: as Gold is tangible in nature, so it creates a perception of safety among investors. It can be easily bought from any local jewellery shop as compared to another asset.
Portfolio diversification: To build a diversified investment portfolio, one should always invest in any form of gold up to 5-10% of total investment amount.
Geo political reason: During economic turmoil or bad trade relations due to war between countries, gold is always considered as a safe haven for parking the funds and have a positive impact on the price of gold.

Disadvantages

But as we know if it has disadvantages and then it comes with cons as well, let focus on those factors.

Gold is a passive investment: Gold does not earn any regular income in the form of interest till the time you hold custody of the metal, its value can only be realized at the time of redemption.
Safety Concern: If one loves to buy physical gold, then storage is one of the issues.
As keeping gold at home is not safe due to theft and if one keeps in bank lockers, then require to pay locker maintenance charges.
In case of bank robbery, bank is only liable up to a certain amount not the value of goods stored in their lockers.
Consolidation of gold prices: The gold price is indirectly related to the stock market, whenever the stock market crashes gold prices tend to rise, which result in its demand, but once the stock market recovers, price corrections happen to gold and investor lose the amount who invested in a rush.

Gold Investment Scheme/Plan

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There are different ways of owning gold that could be physical or paper form. So now let’s discuss which all forms of gold can be considered as an investment.

Physical Gold

Jewellery

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Specially Indian women love to buy gold in the form of jewellery but it should be considered the least valuable form of investment due to its safety concern, high cost and outdated designs which comes with making charges ranging between 6% to 25% depending on the type of jewellery one is buying which will be irrecoverable part of investment during time of need.

Gold coins/Bars

Coins and bars can be purchased from jewellers, Banks, NBFC, MMTC outlets and nowadays even e-commerce websites also sell gold coins and bars from authenticated match sellers. Gold coins and bars come with 100% purity and BIS hallmarked engraved on them and can be resold at the prevailing gold base rate.

Gold Saving Scheme

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In order to attract investors toward jewellery purchases, renowned jewellers like Kalyan, tarnish and others offer a gold saving scheme, in which one chooses the number of instalments and the instalment amount depending upon the jewellery they are planning to buy as a goal to achieve.
As a part of the incentive, the last Installment is paid by the jeweller and upon completion of the scheme, one can buy gold jewellery at maturity at the prevailing gold rate. Generally, this scheme exempts buying of gold coins/bars with these gold saving schemes.

Digital Gold

Is a way of investing in physical gold and it is offered by its vendors and producers MMTC PAMP INDIA and Digital Gold India.
Investors can buy and accumulate gold with as low as 1 Rs purchase and varies from platform to platform and purity of gold is assured by its issuers and offer 999.9 purity.
Digital gold you buy is held in the custody of the issuer till you sell gold or get it delivered to the doorstep.
In case of delivery, the investor has to pay additional charges of minting and delivering the gold accumulated with the issuer or in the instance of sale, one can sell it back to the vendor at the applicable rates.

Stock Market

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Gold ETF (Exchange traded funds)

Gold ETFs are the funds that primarily invest in gold and can be bought/sold on the stock exchange and require a demo account for investing in efts. Generally, these are open-ended mutual fund scheme which is based on ever-fluctuating gold prices. It is considered a worthier form of investment in yellow metal which comes with flexibility, liquidity and tax efficiency.

Gold MF

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GMF is the fund that invests in various forms of gold digitally such as physical gold, In the shares of companies involved in gold mining and Gold ETFs.
It is a convenient way of investing in gold without holding the physical commodity which comes with many risk factors and can be purchased from the mutual fund company.

Sovereign Gold Bonds (SGB) scheme

It is another way of holding paperless investment and its issue by government of India.
its availability “on tap basis” which means the issue of the bond that is not placed immediately to investors.
Authorised still hold the bond until it desires the cash flow or sells of the issue would bring.

Returns on gold investment

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In other words, the government will intermittently open a window for the fresh sale of SGBs to investors.
This happens every 2-3 months and the window remains open for a week’s time. For investors looking to purchase SGBs anytime in between,
the only way out is to buy earlier issues (at market value) that are listed in the secondary market.

Frequently Asked Questions

The gold scheme in Tanishq ?In order to attract investors toward jewellery purchases, renowned jewellers like Kalyan, tarnish and others offer gold saving schemes, in which one chooses the number of instalment and instalment amounts depending upon the jewellery they are planning to buy as a goal to achieve.
How much gold in the investment portfolio?To build a diversified investment portfolio, one should always invest in any form of gold up to 5-10% of the total investment amount.
Is gold investment tax deductible?The taxation of gold MFs and gold exchange-traded funds at the time of redemption is the same as selling gold jewellery.
Alternative to gold investment?Property can generate a daily income and can also be an honest long-term investment if the worth of the important estate property increases over time.

Conclusion

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Every investment open comes with its own set of pros and cons. Investing in physical gold needs safety and security to preserve the same from theft. Investing in gold comes with a bunch of disadvantages,
the other viable investment option that one can consider is mutual funds. They are also more tax-efficient as compared to traditional investments. Hence be wise while investing in Gold.

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