Different ways to invest in gold
Whether or not gold is a good
investment, is a question that does not have a simple answer. Gold has
appreciated substantially over the past couple of years. The growth rate of
late has been much higher than the conventional rate of appreciation. However,
if we look at the past 15-20 years record, it is seen that Gold is a hedge
against inflation. Over the last 20 years, the average return from Gold has
been around 7%. No matter which country you originate from, there is a chance
that your country’s currency will suffer a downfall at a particular point of
time. Gold, on the other hand, retains its true value and can help you protect
your riches because it does not rely on the state of the country’s economic, whether
it is on the up or downtrend.
How can one invest in gold?
Gold can be bought in various forms
and the decision should be based on the reason you need gold. If you see this
purely as an investment, you can either buy it in the form of physical gold —
bars, biscuits and or coins or even in a dematerialized form.
For most Indians, gold purchases
usually mean buying jewellery. However, the disadvantage of buying gold in the
form of jewellery is that its resale is not always a profitable proposition.
Here are some other ways of
investing in gold:
Gold ETFs
You can invest in gold by buying
Gold Exchange Traded Funds (ETFs). Being ETFs, these funds are listed and traded
on the stock exchange i.e. investors can buy and sell them like any other stock
on the stock exchange, on a real- time basis. All you need is a demat account
and a share trading account with a broker or sub-broker who deals in stocks.
These are traded in units of one. That means you can buy one or more units at a
time. Each unit represents approximately the market value of one gram of gold.
Gold ETFs are traded close to
real-time gold prices in the market, that is, ETF prices move up and down with
the market price of gold in the conventional marketplace. Your expenses in an
ETF would be very low: you would pay securities transaction tax (STT),
brokerage /service tax, and the like, which are unlikely to exceed around 1% of
market price. You’d hold gold in demat form in your demat account, just as you
hold shares. If you decide to sell your ETF units, you can do so through your
stock broker or sub-broker and the charges would be the same as what you paid
while buying the ETF. Thus an ETF is very convenient, and you need not worry
about the purity of the gold, secure storage, insurance against theft, and so
on.
Physical gold
This is the traditional way to invest in gold. Investors can buy gold and then
store it in a bank’s locker. If you are one of those people who keep buying
gold jewellery for a marriage of a daughter or son, a better option would be to
buy gold ETF units now at the current price of gold, hold them in your demat
account, and sell them in the future, whenever you want, and use the money to buy
jewellery then. In this way, you will be protecting yourself from rising gold
prices, while also sparing yourself anxiety about the purity and safety of your
gold. You can keep accumulating gold at a slow rate, perhaps even one gram at a
time.
It is evident that gold is an asset
class that you can rarely go wrong with. Therefore, think seriously about
investing in gold.
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