Understanding the Different Types of Gold Investments

Indian households have always had a special place for gold in their hearts and homes. This timeless asset has not only captured our hearts but has also proven to be a solid investment over the years.

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Traditionally, gold coins and jewellery were the go-to choices for investing in gold. However, as times have evolved, so have the options for gold investments. 

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Today, there are different types of gold investments available for investors. In this blog, you will explore these modern alternatives and discuss the benefits of gold investment plans.

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What Are the Various Types of Gold Investment Plans in India?

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The following are the different types of gold investment plans in India:

Physical Gold

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Investing in physical gold can be done by purchasing gold coins, jewellery or gold memorabilia. Generally, jewellery is made of 22-carat gold, whereas coins and memorabilia are 24-carat, which is preferred for resale. Holding onto physical gold can be profitable, as you can sell it later at a higher value.

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However, remember that storing and moving gold can be risky, and the costs of bank lockers for safekeeping can add to your expenses.

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Let us say you decide to invest in physical gold by purchasing a 24-carat gold coin. You buy a 10-gram gold coin for around ₹50,000.

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Over the next few years, the price of a 10-gram gold coin increases to ₹70,000. When you sell the coin, you will have made a profit of ₹20,000.

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Gold Exchange Traded Funds (ETFs)

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Gold ETFs track the price movements of physical gold in the market. Various fund companies manage these ETFs by investing your money directly into gold bullion.

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These ETFs are listed on stock exchanges, making them secure and well-regulated for investors. You can buy or sell units of a gold ETF just like you would trade stocks, offering flexibility to transact on any trading day. 

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As per the news, in May 2024, Indian gold ETFs reversed a negative trend from April, recording positive inflows of ₹8 billion.

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This turnaround mirrors a global resurgence of interest in gold ETFs, highlighting their growing appeal among investors seeking stability and potential returns in uncertain economic times.

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Sovereign Gold Bonds (SGBs)

The Government of India launched Sovereign Gold Bonds (SGBs) as part of the Gold Monetisation Scheme, offering a solid alternative to buying physical gold.

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These bonds come with a 5-year lock-in period, after which you can redeem them for cash. SGBs are perfect for those with a low-risk appetite.

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For example, let us say you invest ₹60,000 for 10 grams of gold and earn an interest of 2.50% per year on your initial investment, which is paid twice a year. So, you will receive ₹1,500 annually (2.50% of ₹60,000), divided into two payments of ₹750 every six months.  Over the 8-year maturity period, you will receive a total of ₹12,000 in interest, on top of any potential appreciation in the price of gold.

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Digital Gold

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Lately, digital gold has become quite popular in the financial world and is considered one of the best ways to invest in gold. In India, digital gold is available through various platforms like Jar, letting you buy and sell gold just like any other online transaction. 

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For example, you can start investing in digital gold Jar app with as little as ₹10, making it easy and accessible for everyone. However, remember that not all platforms offer digital gold, so it is important to research and choose the platforms carefully to avoid scams.

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Gold Savings Schemes

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Jewellers often introduce various gold schemes for their valued customers. These schemes work similarly to a SIP (Systematic Investment Plan), where you invest a fixed amount regularly over a set period.

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At maturity, you receive a lump sum that you can use to purchase gold. It is a convenient way to save and invest in gold gradually, ensuring you have a substantial amount for buying jewellery or gold items later on.

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For example, if you invest ₹4,000 each month in the Tanishq Golden Harvest Scheme for 10 months and decide to withdraw after completing all payments on the 301st day, you are eligible for a 55% discount. This means the total value of your withdrawal would be ₹42,200 (₹40,000 + 55% of ₹4,000). It is a great way to save up for jewellery purchases with added benefits along the way.

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Gold Mutual Funds

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Gold mutual funds, also known as gold funds, offer an alternative to purchasing and storing physical gold. These mutual funds are managed by mutual fund AMCs and are bought and sold at NAV-linked prices. 

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It operates similarly to other mutual funds, providing you with a straightforward way to invest in gold without dealing directly with physical assets. Axis Gold Fund, SBI Gold Plan, HDFC Gold Plan and ICICI Prudential Regular Gold Savings Fund (FoF) are some examples of gold mutual funds.

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Why Should You Invest in Gold?

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Gold offers several advantages as an investment, making it a solid choice for securing your finances. Here is why you should consider adding gold to your portfolio:

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Consistent Value

Gold is not as jumpy as stocks. Its value stays pretty steady, making you feel safer when the stock market is on a roller coaster ride.

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Over the last 5 years, gold has slightly outperformed the Nifty 50, achieving an 18% CAGR compared to Nifty’s 15% CAGR

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Inflation Protection

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When inflation hits and prices go up, the regular currency tends to lose value. Gold, on the other hand, generally keeps its worth, protecting your investments from losing purchasing power.

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Liquidity

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Need quick cash? Gold has got you covered. You can buy and sell it easily whenever you need to. It is accepted almost everywhere, allowing you to convert it into money in no time.

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Global Appeal

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Gold is valued worldwide and has been for centuries. This makes it easy to trade and sell no matter where you are.

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Wealth Preservation

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Think of gold as an ultimate protector of wealth. While currencies can lose value over time, gold consistently holds its worth, making it a dependable way to safeguard your wealth and ensure financial security for future generations.

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The Bottom Line

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Each of these types of gold investments has its pros and cons. Whether you choose physical gold, ETFs, SGBs or any other gold investment, it is crucial to research and understand your options.

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However, remember you must always approach gold investment with the same level of care as any other investment to make the most out of its benefits.

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Frequently Asked Questions on Gold Investment

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1. Is investing in gold profitable?

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Yes, investing in gold can be quite profitable. It acts as a hedge against inflation and is a reliable asset during economic uncertainties. However, it is important to remember that gold should be just one part of a diversified investment portfolio to maximise its benefits.‍

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2. What are the tax implications for sovereign gold bonds (SGBs)?

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Sovereign gold bonds (SGBs) come with tax benefits if you hold them until maturity. However, if you sell them early, you will have to pay capital gains tax on the profits. It is always a good idea to talk to a tax advisor to get advice tailored to your situation.‍

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3. What are the risks associated with buying physical gold as an investment?

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When buying physical gold in India, you should consider several risks. One is the risk of theft if the gold is not securely stored. Additionally, there is a risk of purity issues, where the gold may not be as pure as claimed, potentially resulting in financial loss. Lastly, there is a risk of loss during manufacturing, such as wastage during the creation of jewellery.