If you are like me, in the last week you will have received at least 20-30 notifications to invest or buy gold through different methods. The festive season of Diwali and Dhanteras seems to be a gold-selling season.
The fact is, whether it’s digital gold through UPI apps or gold coins, or even gold jewelry on e-commerce sites, buying gold has become incredibly easy.
Remember I say “buy” and not invest in gold. We Indians have always believed that gold is an investment in the future. With Dhanteras, buying gold has become a ritual. However, what we rarely think about is the purpose.
According to legend, Dhanteras tells of a pile of gold that helped cause a distraction that saved the life of a prince. In the case of the dhanteras, gold has to do with symbolism. It bodes well for what he has achieved, not just for what he is. This principle applies to investing in precious metals, not buying gold.
There are six options to consider today:
2. Gold coins/bars/cookies (physical gold)
3. Digital Gold
4. Gold Traded Index Funds (ETFs)
5. Gold mutual funds and
6. Gold Treasury bonds.
The purpose of holding gold in your wealth portfolio should determine what you invest in.
jewelry and gold coins
Let’s start with gold jewelry. It’s good for aesthetics, but it’s an inefficient investment because you don’t get the true value of gold. Manufacturing costs and the type of jewelry reduce the value of real gold. Therefore, it is better to buy gold jewelry as a pure commodity for your happiness.
Gold coins or bars are a better way to buy metal, but storage can be a problem due to security concerns. As a result, you usually pay for a locker. Also, its settlement can sometimes be a challenge.
Digital gold is a virtual way to buy gold. It is like buying gold stored in a secured vault and purchased by the gram, just like you would buy a gold coin or bar.
The main challenge with this approach is that it is not well-regulated. The Securities and Exchange Board of India has banned brokers from selling digital gold as it does not regulate this instrument. As with physical gold, you must also pay GST. So the buyer has to be careful here.
Gold ETFs invest in the actual metal, and you can invest in it just as if you were buying shares of a company or any other ETF. You need a brokerage account to buy gold ETFs.
SEBI rules apply here, so it’s much better from a regulatory point of view. The value of gold ETFs fluctuates with the prevailing price of gold.
Gold funds invest in gold ETFs. As with other types of mutual funds, you can choose from systematic investment plans, systematic transfer plans, and systematic withdrawal plans, making it a flexible tool for investing in gold.
It does not require a brokerage account, which means it is easier to access. The minimum investment is low, which makes it easy to get started. The instrument moves in a similar way to gold ETFs.
gold treasury bonds
GBS or Gold Sovereign Bonds are government bonds backed by gold that offer interest rates (2.5%) above the regular increase in gold prices. It’s a great way to invest in gold, but SGBs are only issued periodically, so you can’t invest how and when you want.
They also come with an eight-year peg, making them the least liquid option among other non-physical gold investments. However, they have a significant tax advantage due to their treatment of capital gains, which makes up for their relative illiquidity.
So what is the choice of gold?
For most investors, gold MFs and ETFs make more sense than other forms when the goal is to invest. SGBs are a great option if you understand their issue dates and if your horizons are long enough.
Another thing is to review your asset allocation before investing in gold. What goals do you want to achieve with your gold allocation? Ask yourself this question to ensure that the gold in your portfolio has a real purpose.
The purpose of gold in general is to smooth out the volatility of stocks during uncertain times. However, given the modest rise in gold prices in the recent past, it’s also not a bad time to add gold to your portfolio.
While digital gold is an attractive option, the lack of regulatory oversight of this instrument exposes it to risks that an investor may not anticipate.
Finally, especially this time of year, it’s important to remember that if you’re looking to buy gold, especially physical gold, for your family and peace of mind, do the same when it’s not your best bet. in terms of investments.
After all, festivals like Dhanteras are all about feelings and spirituality. Gold is considered auspicious and has a more traditional and emotional connection with people during this time. While investing well is important, there are some things that matter beyond returns and wealth growth.
Good to buy some gold to commemorate Dhanteras and Diwali. The gold nugget as part of your asset allocation can be purchased through mutual funds.