Investing in gold in India is a great way to make a substantial amount of money. However, investments that are in the commodity class can be quite complicated.
This guide is going to provide you with all the necessary information that you need to invest in gold and start your career as an investor.
The main focus of this guide is on gold investment options available in India, but it also covers some basic concepts like what investing means and how to make an investment decision.
Why is gold a preferred investment?
Unlike other investment options, gold can be a great way to diversify your portfolio and also protect you against inflation.
In India, gold has been an integral part of the culture for decades; thus, investing in gold is a great way to take advantage of the current market situation and generate some capital flows.
How to invest in gold in India
There are many ways of investing in gold in India. Some of the most popular ones are –
● Gold jewelry
● Exchange-traded funds (ETFs)
● Gold futures and options
● Physical gold.
The spot price is the most important determinant of the value of an investment. It is also important to consider all these factors when investing in gold for the first time.
The use of leverage can also help investors who want to add more capital or make very large investments by borrowing money from a margin trading account.
Leverage can be defined as borrowed money that allows an investor to trade with a higher maximum recommended position than what he or she can afford to lose.
Ways to Invest in gold
Sovereign Gold Bonds
A Sovereign Gold Bond (SGB) is a debt investment that is issued by the Reserve Bank of India. It promises to pay the bondholders interest at 8.1% per annum, which is payable on a half-yearly basis.
The coupon rate for SGBs was last fixed in October 2017, with effect from January 1, 2018. The SGBs can be bought online and at authorized dealers in multiples of 500 grams and multiples thereof.
For example, if you buy a 1 kg SGB from APMC Jewellers, you will pay Rs 2.10 lakh for it as compared to the price of Rs 2 lakh that would have been charged if you had bought 500 gms from them.
Gold ETFs
The primary objective of an equity ETF is to replicate a market index or price a specific portfolio. An ETF is an investment fund that holds several stocks. These are funds that track indexes.
A typical example of an equity-linked product is the gold ETF, which tracks the price of gold against other commodities in the market today. In India, two gold ETFs are listed on BSE – HDFC Gold ETF and ICICI Prudential Gold ETF.
Producer Price Quotations
PMQs or producer prices are essential elements for gauging inflation in India. They indicate how commodity prices have been trending and provide some information about future inflationary pressures in the country.
Gold Coins
Gold coins are another form of investing in gold in India. Gold coins can be purchased and exchanged for gold bullion. Gold coins can be bought from banks and the rates will depend on the coin of your choice, the weight, and the purity of the metal.
Gold Bullion
Gold bullion is also a good option to invest in gold in India. A bar or a lump of gold is an amount of unrefined bullion that has not been cast into shape.
An investor can buy it from either a jeweller or a bank or any other authorized institution. The price quoted for these bars will be inclusive of the premium that they charge over the current spot price of gold per kilogram (or ounce).
Gold Mutual Funds
Gold funds have been around since 1967 and like any other mutual fund, they consist of pooled funds collected from a large number of investors who want to invest in a particular sector or index.
Gold mutual funds can be a very effective way to invest in gold in India. Gold mutual funds are an investment option which combines the unique characteristics of gold with the diversification benefits of a mutual fund.
These funds will invest in various products such as gold securities, stocks and bonds. Additionally, investors can also choose from various companies that produce or trade gold such as Bharat Gold Mines Ltd (BGM), Gold Fields, Barrick Gold Corp (ABX) and First Quantum Minerals Ltd (FQM).
Digital Gold
Digital gold is also another option for investors to invest in gold in India. Digital gold can be found in the form of gold-backed tokens on the blockchain.
Digital assets and cryptocurrencies such as bitcoin and Ethereum are currently getting a lot of media attention, but their value depends on what people believe they are worth.
This is why they are sometimes referred to as "fiat" currencies, meaning they are backed or controlled by governments or central banks.
Physical Gold
Physical gold is another option for investors to invest in gold in India. Physical gold is not only a safe and secure investment option but also a good way to diversify your portfolio.
It can be deposited with a bank or any other authorized institution and can be exchanged against bullion at any time without any commission, delay or restrictions on the rate of exchange.
Physical gold can also be bought from physical bullion dealers who deal in gold coins, bullion bars, jewellery and premiums (premiums charged over the current spot price of gold per kilogram). These dealers may also have other products as well such as silver coins, diamonds and jewellery.
Things to keep in mind before investing in gold
Understand The Basics Of The Gold Market
Before you even consider investing in anything related to gold, there are some basic concepts that you need to know before making any investment-related decisions. The first one is the concept of the spot price. The spot price is the going rate for a commodity at any given point in time.
The methods of investing in gold in this article are some of the best ways to invest in gold. But there are a few things to keep in mind before investing in gold and they are:
● A good time for investing in gold is after you have liquidated your debt and have a little extra money left over. You can use this money to invest in gold or you can put this money into a long-term investment.
● The prices of gold change from day to day depending on the market sentiment and liquidity. Hence, the prices of gold are volatile. The volatility can also lead to small changes in the price of gold that can sometimes be significant but not all the time.
● Price movements of precious metals tend to be higher on weekends due to a lack of volume and liquidity as well as a large institutional presence. A lower trade volume and liquidity can also cause price movements to be erratic.
● As per a study published on the website of SBI, looking at the returns of 1 year for about 6 options showed that gold was the least efficient option for investment in India. But this does not mean that it is not a good investment, rather it can be better as a long-term investment as compared to gold mutual funds.
● Gold prices vary from one market to another and you cannot compare them without checking your local market. Even if you are content with an investment in gold in one market, you might want to invest in gold in another market if there is a lower price in the other market.
Conclusion
Generally, investors consider buying gold as a safe investment option and the best time for this is during volatile times. However, this does not mean that you should go out and invest in gold whenever there is a major market crash. It is important to diversify and invest in productive assets as well.
Gold has been considered a good investment option for centuries because of its intrinsic value but it cannot be your only investment choice. It is still always better to consult an experienced broker before investing in gold so that you can avoid any financial losses, especially during volatile market movements and upturns.
FAQs
What are the most common sizes of gold bars?
The most common sizes of gold bars are one troy ounce of 24-karat gold (1 oz.) and one kilogram (1kg). However, other sizes such as 500g, 1kg, 5kg or 10kg can also be bought from jewellers as well. The price will vary depending on the bars that you buy from different jewellers.
What is 24 karat gold?
24 karat gold is only 5% pure gold and the remaining 95% is other metals like silver, copper and so on. These additional metals make up the weight of the bar and hence it is less effective at protecting against magnetic fields than pure gold.
What is the best way to invest in gold?
The best way to invest in gold is by buying gold coins and storing them in a secure place that is accessible anytime. This way, you can be sure that your gold will not get stolen or damaged by external factors like the weather and humidity.
Is gold a good investment?
Gold is one of the best investments to make with your money that has a high ROI.