How to Invest in Gold in India?

 

What is the best way to invest in gold in India? What are all the different ways to invest in gold? How can I / we invest in gold? What are all the various gold investment options available to Indian Investors?

 

Let us discuss in detail about how to buy gold for investment purpose.

 

Gold as an Investment Option

 

Before proceeding further let us answer a basic question in our mind. Why to invest in gold? Should I invest in gold? Is gold a good investment option?

 

It is your hard earned money. So you need to answer these questions before investing in gold. Why do people invest in Gold? What are all the benefits of investing in gold?

 

There are 2 primary reasons why you need to invest in gold.

 

·        Investing money in gold is worth because it is a hedge against inflation. Over a period of time, the return on gold investment is in line with the rate of inflation.

 

·        It is worth investing in gold for a one more very valid reason. That is gold is negatively correlated to equity investments. Say for example 2007 onwards, the equity markets started performing poorly whereas the gold has performed well. So having gold as an investment option in your portfolio mix will help you reduce the overall volatility of your portfolio.

 

The above 2 points could have given some answers to your question “Is buying gold a good investment?”

 

Return on Gold Investment

 

Is it profitable to invest in gold?

 

This investment proved remarkable from 2006 to 2011.During that time span Gold has given average return of 29% per annum which was any day better than other investment options.

 

However, the long term average return on gold investment is less than 10% p.a.

 

As one can say technically or ironically but history always repeats itself. Therefore, we may once again observe the similar less than 10% appreciation pattern in gold prices in near future.

 

Still, if you want to invest in Gold and cannot resist yourself from the temptation then these are few tips on how to invest in gold correctly!

 

1)    Jewellery buying

 

Our age-old and traditional way of investment is jewellery buying where one can buy gold ornaments, bars or coins. However, it has its own disadvantages, total buying cost involves heavy making charges (it can be 10 to 20% of total cost).However, when you try to sell the same piece to same jeweler, he will buy it below market rates and deduct those making charges from the total price of your jewel.

 

2)    Investment in Gold coins and bars

 

Investment in gold coins and bars is also a better option over jewel buying. You need to decide on ‘Where to buy gold coins or bars?”. You should buy gold bars and coins only from jeweler. Banks also sell gold coins or bars. Then why do we advocate for buying god bars and coins from jewelers? To answer this question you ask yourself “How to sell gold coins or bars?” or “Where to sell gold coins in India?”

 

Banks sell gold coins and bars, but they cannot buy it back. Whereas, the jewelers can buy back the gold coins from you.

 

How to invest in Physical Gold? The point 1) and 2) could have proved that it is better to invest in the physical gold by way of gold coins or bars sold by the jewelers. In the next points 3) and 4) we will discuss about the paper gold investment options in India.

 

3)    Gold ETF:

 

What is Gold Exchange Traded Fund? Gold exchange traded fund is a type of mutual fund which in turn invests in gold and the units of this mutual fund scheme is listed in the stock exchange.

 

How to invest in Gold ETFs in India? You need to buy Gold ETFs from the stock exchange by way of opening a demat account and trading account. You have to pay brokerage fee (which is generally between 0.25% to 0.5%) for buying and selling of these Gold ETFs. You will have to further pay 0.5 to 1 % charges as fund management charges.  

 

 

4)    Gold Fund of Funds:

 

What is Gold Fund? Gold fund is a Fund of Fund which will invest in Gold ETFs on behalf of you. Best part here is that you do not require holding any demat a/c here. 

 

Then how to invest in Gold Mutual Funds? Just like investing in other mutual fund schemes. As this is like any other mutual fund scheme, SIP investment in gold is possible through these gold funds.

 

Still buying Gold fund of fund is little expensive option, as you have to pay

1) Annual management charges for the underlying Gold ETF

2) Annual management charges of Gold FOF Scheme .

 

Gold ETFs Vs Gold Mutual Funds

 

With Gold ETFs, you need to open demat account and pay broking charges. With Gold Mutual Funds, you need to bear the additional charges charged by the Gold Fund of Fund.

 

If you are buying in less quantity then gold mutual funds may be suitable. If you are buying in more quantity then you can negotiate for the lesser brokerage charges from your stock broker, hence gold ETF may be suitable.

 

 

5)    Equity based Gold Funds:

 

Here these funds are directly not investing in Gold but investing in the companies, which are related to the mining, extracting and marketing of the Gold. Besides, its performance is purely dependent upon the performance of the fund house and the equities they are investing.

 

In the other 4 options, your investment performance will be directly linked to the price movement in gold.

 

However, investment in these funds is suitable for investors with high-risk appetite.

 

·        As these are equity-based funds, equity risk is there.

·        There are no listed companies in India associated with Gold. Therefore, these funds trade in international market and quiet susceptible to currency-risk apart from gold-risk and equity based risk.

 

Therefore after assessing or weighing pros and cons of each gold investment option, one can conclude that Gold ETFs and Gold Funds are safest, profitable and most preferred options among the various alternatives.

 

How much to invest in Gold?

 

5% to 10% of your over assets can be invested in gold. If you invest more in gold, remember in the long term return on gold investment is less than 10% p.a.

 

Is it right time to invest in gold?

 

Many times I have faced questions similar to “When to invest in gold?” or “Should I invest in gold now?” There is no right or wrong time to invest in gold. You need to invest in gold for long term ( 5+yrs). It is better to stagger your investments over a period of time to average out the cost of purchase.

 

How to start investing in Gold online?

 

You can start investing in gold online either by investing in gold ETF or by investing in gold funds. Gold funds can also be bought online just like investing in other mutual funds online.

 

The above compilation on different methods of investing in gold could have given you more clarity about investing in gold. Clarity is power when comes to taking investment decisions.

 

The author is Ramalingam K, CFP CM is the Chief Financial Planner at holisticinvestment.in, a leading Financial Planning and Wealth Management company. 

 

7 Things to know about The Gold Monetization Scheme

 

 

It is said that “all that glitters is not gold”. Yes, that is true, but even gold with all its glitters is of no use when kept idle. The Gold Monetization Scheme, as introduced by the government of India, aims to monetize gold so that it earns interest.

 

Objective and features of the Gold Monetization Scheme

 

The basic objective of this scheme is to mobilize gold held by households and institutions in the country and put them to productive use. The scheme aims to bring down the import of gold in the long term. The scheme will provide the investor with the opportunity to earn interest on the amount of gold deposited.

 

FAQs on Gold Monetization Scheme

 

1.       What kind of gold can be deposited under the scheme? What is the minimum and maximum quantity which can be deposited?

 

Gold in any form, bullion or jewelry can be deposited. However jewelry with embedded stones are not be accepted. The minimum amount of gold which will be accepted as a deposit is 30 grams of 995 fineness. There is no upper limit for deposition.

 

2.       What will be the tenure of deposit?
 

The tenure for deposit has been distributed into three term plans which are as follows:

i.                     Short term:                         1 to 3 years

ii.                   Medium term:                  5 to 7 years

iii.                  Long term:                          12 to 15 years

The investor will be allowed to break the deposit during the lock-in period by paying a penalty for premature withdrawal.

 

3.       What will be the interest rate payable on the deposit?
 

Initially, it was proposed that the amount of interest rate payable for deposits made for the short-term period would be decided by banks and would be denominated in grams of gold.

For the medium and long-term deposits, the rate of interest (and fees to be paid to the bank for their services) will be decided by the government, in consultation with the RBI from time to time. The interest rate for the medium and long-term deposits will be denominated and payable in rupees, based on the value of gold deposited. As of now the rate of interest is 2.25 per cent on the current price of gold for the short term and 2.5 percent for the medium and long term deposits. The interest is taxable.  

 

 4.   Who is eligible to deposit under the gold monetization scheme? Is joint deposit allowed?

 

Deposits can be made by residents of India, HUFs’, mutual funds and exchange trading funds registered under SEBI. Yes, joint deposits are allowed with a minimum of two holders with no cap on the maximum number.

 

5.       Where can the deposit be made?

 

The deposit of gold can be made at any scheduled bank as per the list of scheduled banks under the Reserve Bank of India.

 

6.       How will the authenticity of the gold be verified?

 

A total of 331 Assaying and Hallmarking Centers’, spread across various parts of the country, which meet criteria as specified by Bureau of Indian Standards (BIS) have been enlisted by the government. These centers have been entrusted with the task of Collection and testing for purity of gold, for the purpose of this scheme.

 

7.       How to open an account for gold monetization?

Individuals willing to open a gold deposit account have to do so with a scheduled bank as listed under RBI guidelines. The nature of the account would be similar to normal zero balance saving bank accounts.

 

The documents which are required to open the account are also the same as those required for any savings bank account opening viz. customer (KYC) form along with valid address proof, ID proof and passport size photograph.

 

The following additional steps are to be followed for this scheme:

i.         Once verification of details is completed, depositors need to approach the government authorized Collection and Purity Testing Centres (CPTC). The bank will provide this list to the depositor.

ii.       CPTC will carry out a detailed assessment of the gold and once the verification is successfully done they will issue a receipt for the gold quantity which is signed by the authorized signatories of their centre.

iii.      Depositor will then have to submit the receipt in the bank who will in turn issue a final deposit certificate to the depositor with all relevant information including the tenure for which the deposit is made.

 

Bottom-line:                                 

As many investors think, it is NOT a scheme in which they collect your jewels and pay interest for the period and return the same jewels that you have deposited. If you deposit jewels, that will be converted and transformed into equivalent coins or bars and used by the bank. When you withdraw, you will get the equivalent money or the equivalent amount of gold coins or bars.

 

The author is Ramalingam K, CFP CM is the Chief Financial Planner at holisticinvestment.in, a leading Financial Planning and Wealth Management company