Investing in gold is a traditional form of investment and is considered one of the riskiest investment options. For a long time, the yellow metal worked as a hedge against inflation.
In India, gold is also one of the most exported metals. Financial planners often suggest that this precious metal should be part of the portfolio of investors.
From a long-term perspective, gold can outperform FDs and RDs. There are many options for investing in gold. In addition to buying physical gold, which is still popular in India, investors have options such as gold bonds and exchange-traded funds (ETFs) or mutual funds.
Here are five different ways to invest in non-physical gold:
Some banks, fintech platforms, and major jewelry companies allow investors to buy digital gold. Investing in digital gold is just as good as investing in physical gold. It allows investors to buy a quantity of gold online, but eliminates the need to store it physically. Gold purchased as a digital commodity will be stored in vaults insured by the seller on behalf of the client.
The only disadvantage of investing in gold is that it is not subject to the regulations of the Securities and Exchange Board of India (SEBI).
Investing in gold ETFs is the same as investing in shares on the stock exchanges. But unlike physical gold, which varies in price from state to state due to local taxes, gold ETFs reflect current gold prices. Investors can invest in gold ETFs through their Demat account. Investing in gold ETFs is equivalent to investing in 99.5% pure gold.
Most of his investment goes to physical gold and the rest to debt instruments.
Sovereign Gold Bonds or SGBs are government securities denominated in grams of gold. Investors have to pay the issue price in cash and the bonds will be redeemed for cash at maturity. The Bond is issued by the Reserve Bank on behalf of the Government of India. Introduced in 2015, these bonds have an eight-year term with a five-year lock-up period. However, investors can choose to sell the bond even before maturity. Investors can also buy bonds at any time on the stock exchanges.
Also known as gold savings funds, these are mutual funds that invest in gold ETFs. But unlike ETFs, investors don’t need a Demat account in order to invest in a gold fund of funds. In gold savings funds, an investor invests most of his corpus (90%-100%) in gold ETFs (from the same sister company), a small part may also be in money market instruments or some products short-term debt.
Gold futures and options derivative contracts are available on the Multi Commodity Exchange (MCX). There are two classes of gold derivatives that are commonly traded, forwards and futures, as well as options in both categories. Forward contracts are bespoke bilateral agreements, while futures contracts are standardized and traded on registered exchanges.