What Are The Best Ways To Invest In Gold?

As Gold has been on a glittering run, Check out the different ways to invest in Gold and which suits the investors the best. 

Why Gold: The precious metal has been on a roll in 2024, rallying to all-time-high levels. On the Multi Commodity Exchange, The Gold Futures had hit an all-time high level of ₹74,772 on May 20. The commodity which is seen as a haven has attracted investments in the year after uncertainties sprung up due to tensions in the Middle East. 

Another factor for Gold's run is central banks around the world are increasing their gold reserves after the US sanctioned Russian assets prompting countries like China to shore up their gold reserves. 

Hareesh V, Head of Commodities, Geojit Financial Services said it is common to allocate 5% to 10% of an investor's portfolio to gold as a hedge against inflation and currency risk. During high inflation and economic instability, an investor can increase their allocation beyond this limit. 

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What are the Best Ways To Invest In Gold: Investors can buy gold through Sovereign Gold Bonds (SGB), Gold Exchange Traded Fund (ETF) or Gold Mutual Funds, Physical Gold and Digital Gold. The advantages and disadvantages of buying gold through each method are given below.

SGB: SGBs are bonds issued by the Reserve Bank of India (RBI) and investors can buy them through banks or brokerages. SGBs are backed by the Indian government. Along with providing returns linked to Gold's price, SGB will also have a 2.5% annual interest. However, SGBs have a lock-in period of 5 years. So the investor has to wait 5 years before selling the bond. However, if the investor holds the bond for 8 years they are exempted from capital gains tax. 

Gold ETFs: Gold Exchange Traded Funds are another way to invest in gold. These ETFs invest in gold of 99.50% purity. Because it is an ETF it can be traded in stock markets and the investor can buy or sell it at any time. The investor needs to make a Demat account to buy and hold gold ETFs. Because it is a passively managed investment, the expense ratio will be less. 

Gold Funds: These are mutual funds that are invested in gold ETFs. An investor can buy the funds through an asset management company (AMC). Investors can invest regularly through mutual funds through systematic investment plans.  They can sell the mutual funds whenever they want. However, the transaction will be carried out at the price at the end of the trading day. Because it is actively managed, the expense ratio will be high and the investor will need to pay exit load when they sell the gold.

Digital Gold: Digital gold is a way to own gold with a small amount of money. Available through various fintech platforms like Google Pay, and Paytm, investors can buy gold for a small amount even like ₹1. The investor can buy and sell gold at market prices. The investment is also backed by physical gold. When the investor sells, they can redeem the investment value or get physical gold delivered. However, not every platform will offer this service. 

The biggest risk of investing in digital gold is the lack of a regulator for the product. When you purchase digital gold, the producer buys an equivalent amount of physical gold in your name, which is then stored in third-party vaults or in the seller’s vaults, as seen with MMTC-PAMP. Typically, a trustee is appointed to ensure that the quantity and purity of the gold are maintained according to the gold purchased by the investor.

However, there is no regulator to oversee whether the trustee is performing their duties correctly. While statutory audits are conducted, these auditors are appointed by the digital gold providers themselves, and the audit reports are also submitted to them, creating a potential conflict of interest.

Physical Gold: An investor can also invest in physical gold through jewellery, coins and bars. However, there are damage and purity concerns for physical gold and investors need to secure the gold by themselves. 

Investors can choose their method of investing in gold depending on their risk tolerance and patience. According to Hareesh V, "Investing in gold in a staggered way would be the best option as gold prices are largely volatile during periods of economic and political instability."

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Posted In: NewsCommoditiesMarketsPersonal FinanceGeneraldigital goldGoldGold ETFGold FundSovereign Gold Bonds