We Indians always have a soft corner for Gold, be it any Occasion like Marriage, Birthday, etc or Festivals like Diwali, Dhanteras. Buying or Gifting of Gold in various forms has always been a part of our lives or we can say with Gold, these Occasions are Incomplete. However many people also invest in Gold in one or other forms so as to gift or pass onto the next generation.
So are you also thinking of Investing in Gold?
Well, Let’s discuss the options that are nowadays trending for Investment purposes…
- Physical or Tangible Gold -Jewelry or Gold Bars/Coins
- Gold ETFs – Exchange Traded Gold Funds just like Equity (Shares) and Bond ETFs
- Sovereign Gold Bonds – Bonds issued by RBI on behalf of the Government
Now, let me first walk you through the features of each of these options under various case scenario:
Now the major question that arises is, “What mode of investment should I adopt when it comes to Gold?”
- The first consideration point is the Liquidity of the investment which means how easily and quickly an asset can be converted to cash. If liquidity is a concern, then an investor should go for physical gold or gold ETF, since these are readily saleable, unlike Gold Bonds which have a Lock-in period. Gold Bonds should only be bought if one can hold for a longer period. Further, Physical Gold can be bought either in the form of Jewelry or Gold Bars (Bullions).
- The second consideration point is the Costs associated and safety to hold. Physical Gold comes with its own extra costs in the form of making charges (which can shoot up to as high as 15-20%) and/ or impurity deductions while selling, which makes it a little more expensive compared to ETFs and Gold Bonds. Also, Bonds & ETFs are much safer and easier to hold/ store than physical gold, which is prone to threats of theft or fraud
- The third consideration point is the Returns. Sovereign Gold Bonds are the best alternative since a fixed rate of interest- 2.5% p.a is paid on them by the Government and they are Tax-Free on Redemption. ETFs are good too but offer only appreciation in the price of Gold as a return. Physical gold, as mentioned above, can face impurity cuts or making charges if we seek to have our existing jewelry modified.
Therefore, it can safely be concluded that if an investor can hold the investment for a period of 8 years, then Sovereign Gold Bonds are probably the best option to invest since they offer higher returns, are the safest, easier to maintain and attract least cost. Just in case liquidity is the concern, then ETFs stand as the second-best option.
However, if the only purpose to invest is to maintain it as jewelry to be passed on in the family or as a permanent gift for family members, then Physical Gold in the form of jewelry is the best option. In that case, making charges and impurity deductions are the obvious costs but they become irrelevant in the case when the occasion is to be planned.
HAPPY INVESTING!