Gold Investment Guide

 While people in India have brought gold over for various reasons, usually cultural or religious, it has found appeal as an investment option as well. Here are a few things that work in favor of gold:

Gold Investment Guide

Long-term store of value – For centuries, gold has been the best store of value for the long-term(store of value is an asset that maintains its value without depreciating). The fact that it can play the role of money adds to its superiority and its outperformance of the currency value make it attractive. 

Inflation hedge – When inflation rates rise, the value of currency drops. However, over the last five years, despite the rise in inflation rates, gold prices have doubled. In India, where inflation rates tend to exceed interest rates, investing in gold is a hedge against inflation.

Liquidity – One of the most important features of gold investment is liquidity. Gold can be bought and sold in a very short time. 

No specialized knowledge needed – When you buy stocks or invest in mutual funds, you need some knowledge of the market and economy to make the right decision. With gold, no such knowledge is needed. It is simple and straightforward making it easy to invest in for all kinds of investors.

1. Digital Gold

Invest small amounts – Gold investment was traditionally associated with a sizable sum of money. With ten grams being sold at close to Rs.50000, investors needed a reasonable sum before they could invest in the precious metal. With digital gold, you can invest as low as Rs.10!

Liquidate within two days – If you own digital gold, you can sell it anytime and receive funds in your account typically within two working days.

Zero making charges – Unlike jewelry or other physical gold options, digital gold has zero making charges.

View your gold holdings online – If you invest small amounts regularly, you will soon have a sizable amount of gold in your account. With digital gold, most platforms allow you the option of viewing your holdings online.

Convert to physical gold – Many digital gold platforms also allow you to convert your digital gold holdings into physical gold on demand. 

2. Gold coins or Bars

To save on ‘making charges’ that are applicable to gold jewelry, many investors opt for gold coins or bars. Since these coins/bars do not require skilled artistry, the making charges are not applicable. Today, you can buy these coins or bars from jewelers, banks, ecommerce websites, and many non-banking finance companies. 

3. Gold Savings Schemes

Jewelers across India offer various schemes to help people invest in gold in installments. Typically, a jeweler allows you to deposit a pre-determined amount every month for a specific period. At the end of the tenure, they can buy gold from the same jeweler at a value equal to the amount deposited plus a bonus (if offered by the jeweler). The gold can be purchased at the prevalent gold price on maturity. 

4. Gold Sovereign Bonds

Issued by the Reserve bank of India (RBI), Gold Sovereign Bonds are the safest way to purchase digital gold. The RBI issues them on behalf of the Indian Government. These bonds have an assured interest of 2.50% per annum. The bonds have a lock-in period of five years and an overall tenure of eight years.

5. Gold Mutual Funds

These funds invest in gold reserves directly or indirectly. They invest usually invest in stocks of mining companies, physical gold, and stocks of gold producing and distribution syndicates. The performance of these funds is usually linked with the performance of gold prices in the country.

Tax Rates for Gold Investments 

Keep yourself abreast of the tax rates applicable for profits earned from gold investments. In India, when you sell gold, you attract capital gains tax. If you have held the gold for three years or less, then the gains made will be called short-term capital gains or STCG and will be taxed at the income tax slab applicable to you. On the other hand, if you hold the gold for more than three years, then the gains will be called long-term capital gains or LTCG and taxed at 20%.

Things to Keep in Mind Before Investing in Gold 

The performance of gold stocks and mutual funds can differ from that of physical gold. The price of gold is determined by a lot of factors including the demand and supply of the commodity, economic conditions of the country, etc. While a company belonging to the gold industry gets directly impacted by the change in gold prices, there are other factors that influence the price of stocks of these companies. Hence, before buying gold stocks or mutual funds, ensure that you research the company or the scheme thoroughly.

If you are investing in physical gold, then ensure that it is in a place that is safe and secure. 

Gold prices tend to move inversely to the stock markets. However, it is not always true. Hence, it is important to ensure that you have an investment portfolio that is designed to weather all storms.