Gold was discovered in its most basic and natural state – in streams and in the ground of the ancient world – and gold is one of the first precious metals known to mankind. As a natural response to its beauty and rarity, gold became a symbol of royalty and glamour in nearly every culture that was able to obtain it. Its brilliance and resistance to tarnish made the precious metal an ideal jewelry-making commodity, and eventually a viable currency. Therefore all families irrespective caste, creed, religion prefer to possess gold as one of their assets. Many of course do it as a way to invest to make gain in future.
Of late, there is lot of movement in gold price and people are considering acquiring gold to store value of their money. This has triggered rise is price of gold and people are wondering whether this price will rise further, is it the right time to invest, is gold the best option to invest and ways to invest in gold. This is not the first time that gold price has responded to a crisis situation. Whenever, there is down swing in the economy, stock market plummeting, gold has become favorite of investor. This is keeping aside fluctuation in gold price due to seasonal effect especially wedding season. Current rise in gold price is fall out of bearish equity market and uncertainties of COVID-19 situation.
Experts have observed that after giving a return of 23.74 percent in 2019, gold is likely to continue its upward trajectory. The prices are likely to shoot up in the next two-three years with fear, speculation and uncertainty around the current economic situation. The precious metal has so far given a return of 15.19 percent in 2020.
In general, retail investor’s holds gold around 10-15 percent of their investment portfolio, which may go up to 30 percent in the next two years. There is no doubt that gold is a choice of asset acquisition and investment option irrespective of economic situation.
Unlike past, today there are multiple choices available to invest in gold. The following are the ways that one can acquire or invest in gold.
#1 Physical gold
Majority of household keep investment in gold in the form of jewelry. But it was its own concerns like safety, design obsoleteness, costly making charges and purity. As against this gold can be kept in the form of gold coin or bar. It this case though there are no concern of design obsoleteness, making charges and purity, there will be concern related to safety. There is another way of investing in gold is by way of monthly installment to jeweler. At the end of the contractual period the Jeweler will provide physical gold either in bar or jewelry for equivalent value of deposit together with bonus/interest if any. However, it will be as per prevailing market value of gold.
#2 Paper gold
In contrast to owning gold in physical form, paper gold is more cost-effective and safe. Paper gold can be owned by two ways – gold Exchange Traded Fund (Gold ETF) and Sovereign gold bond (SGB). To own Gold ETF one needs a trading and demat account. One may either buy in lump sum or even at regular intervals through systematic investment plans (SIP). You may even buy 1 gram of gold. The cost of owning through Gold ETF is closest to gold price in the market with minor addition of three costs i.e. the expense ratio for managing the fund, which come around 1%, 2) broker cost that needs to be accounted for every time you buy or sell gold ETF units and 3) tracking error, which may or may not occur.
SGB is another way of owning paper gold. They are issued by the government but availability is not ‘on-tap basis’. Instead, the government will intermittently open a window for the fresh sale of SGBs to investors. This could typically happen every 2-3 months and the window will remain open for about a week. For investors looking to purchase SGBs anytime in between the only way out is to buy earlier issues (at market value) which are listed in the secondary market.
# 3 Digital gold
This is the latest method of acquiring gold. ‘Digital Gold’ is offered on the mobile wallet platform of Paytm and ‘GoldRush’ is offered by the Stock Holding Corporation of India (SHCIL) on their website, while Motilal Oswal has launched Me-Gold, a digital gold online investment. All of these are offered in association with MMTC – PAMP, (a joint venture between public sector MMTC and Switzerland’s PAMP SA) under the Gold Acquisition Plan (GAP).
The features of Paytm’s Digital Gold
- You can buy gold either in rupees or in grams as per your convenience.
- You can buy for a minimum value of Re 1 or the minimum amount of gold you can buy starts from 0.001 gram.
- You can buy or sell gold anytime even on public and bank holidays.
- Live gold prices are offered per gram which is inclusive of taxes, foreign exchange conversion, customs duty and other operational costs but is exclusive of product manufacturing / making charges, delivery charges.
- The minimum quantity to redeem the digital gold into gold coins is of 1 gram.
- It is stored absolutely free of cost in highly secure vaults of MMTC-PAMP. There are no extra charges for storing gold on the platform. However, there are making and delivery charges that are to be borne by the customer when digital gold is converted into gold coins. Making charges depend on the design and weight of the gold coins.
- Investor have the option of selling your digital gold back to Paytm instead of converting it into physical coins.
The features of GoldRush offered on SHCIL
- You can buy gold for a minimum value of Rs. 1,000 and in multiples of Rs. 100 thereafter. The maximum amount you can purchase in a single transaction is Rs 49,999.
- You can buy or withdraw anytime online 24 hours a day, 7 days a week, and 365 days a year.
- The gold prices are offered in rupee terms which are derived by converting US dollars into Indian rupee.
- The minimum quantity to take physical delivery of gold is 1 gram.
- Investors have to take settlement in physical gold only. SHCIL does not offer to buy back the amount invested in Goldrush except in case of fractions left on closure of account.
Maximum time period to keep gold digitally
Paytm allows you to keep the digital gold for maximum time period of 5 years from the date of purchase after which you have to redeem it either by selling it or by converting it into gold coins. In case of purchases on different dates, the time limit of 5 years for each purchase is taken from the date of that particular purchase.
According to SHCIL, you can keep the gold in the vault for only 5 years. Once the 5 year period expires, you will have to take the delivery. In case you do not take the delivery within 45 days post completion of 5 years, storage and insurance charges at 1% on total accumulated value per annum will be applicable.
Non-cancellation of transaction
Once you have placed a transaction (buy or sell) on these platforms, you cannot cancel it.
So which way is the best?
The initial cost of owning physical gold in the form of bars or coins is anywhere around 10 percent and it is even higher for jewelry. SGB and Gold ETF, both paper-gold, are cost effective as there is no entry cost in SGB while costing for gold ETF could be around 1 percent.
SGB should benefit those who want to invest in gold for a longer period as its maturity is after 8 years, although the lock-in ends from the fifth year. However, gold ETF provides much better liquidity than SGB. Owing units is much easier than SGB as it’s entirely online in case of ETFs. The risk of owning, holding also doesn’t exist in both.
The big difference is on the taxation front. Gains in SGB on redemption are tax-exempt but gains in Gold ETFs after 3 years are subject to 20 percent tax post indexation.
The only disadvantage with gold ETFs is that its units won’t be earn the additional interest of 2.5 per cent per annum like you would get for SGBs.
Get clarity as to why you need to invest in gold – is it for marriage purpose or for pure investment. For investments, one should not have more than 10 percent of the total portfolio in gold. Choose between Gold ETFs or SGBs depending on how comfortable you are managing investments online and keep the worries of purity, security aside.
Gold always glitter and your gold will too.