Best Guide to Invest in Gold Stocks in India

Gold has been used as a form of money throughout history. It has been used as a standard for currencies from ancient times until modern times. In the latter part of the 19th century, many European countries introduced the gold standard which was temporarily suspended during World War I. After World War II, the Bretton Woods system was used to peg the US dollar at a rate of $35 per troy ounce. In 1971, the Bretton system was replaced by Nixon Shock when the US transitioned US dollar to fiat currency or currency without intrinsic value. Since the year 1919, the common benchmark for the gold price has been London gold fixing. It is a telephone meeting of representatives from five major bullion trading firms of the London bullion market. Bullion stands for gold, silver, and other precious metals.

What are the Gold Stocks?

Stocks in simple terms refer to shares that one buys in return for profits in the form of dividends. So you own a portion of the company, and you get a portion of the profit based on your investment. Investing in gold means that one is investing in the stocks of companies that operate with gold and other gold-related activities. Typically mining companies, gold mutual funds, and exchange-traded funds offer these types of stocks. Returns from buying gold stocks will depend on the market conditions to a certain extent. It will depend on the gold rate of today.

Why Should you Invest in Gold?

It is no mystery why gold is much popular as a means of investment. People pass gold from generations to generations. It is a form of asset. However, often physical gold tends to deteriorate over time. Factors such as the purity of gold and making methods affect it. The best way to avoid this is to invest in gold stocks. You get all the benefits of investing in gold without having to face any disadvantages of depreciation of physical gold. Some advantages of investing in gold stocks are:

  • Protection Against Inflation: Gold is an excellent instrument to protect you against inflation. The gold-stock price has been proven to show positive results during times of economic crises. It has a strong asset appreciation for the long term.
  • Start Small: You can start investing in gold stocks with a small amount. It is not required for you to have a huge amount of money ready beforehand. Start small and add more as it becomes more convenient for you.
  • Quick and Easy Liquidity: You can easily convert your gold stocks when you find the perfect price for it. Combined with the fact that they are safe and give assured returns, this factor is a major benefit.
  • Tax Benefits: Gold stocks come with some tax benefits also. Funds such as SBI gold fund can be treated as a non-equity product. Long term capital gains can be claimed from gold stocks after one year passes since the initial investment.

How Do you Start Investing in Gold?

There are multiple ways you can use to start investing in gold. You can invest in physical gold or paper form of gold.

Physical Gold

  • Jewelry: This is one form of gold that many Indians grew up witnessing. We have seen our grandmothers, and great grandmothers have collected and preserved their gold jewelry over the years. They are later passed on to the next generation. But this form of gold has its form of disadvantages. Making charges are very high and also ensuring gold purity is a big issue.
  • Gold Coins: People often buy gold coins from jewelers or banks or NBFCs. Today some e-commerce websites also offer gold coins for purchase. The government also has gold coins with the Ashok Chakra on one side and Mahatma Gandhi on the other side. The coins are of 5 gm and 10 gm, and there are bars as well of 20 gm. One can buy these coins and bars from designated MMTC outlets and also through specific bank branches and post offices.
  • Gold savings Scheme: Gold savings schemes come in a couple of different forms. One is where you deposit a fixed amount of money every month over a given tenure. When the tenure ends, you buy gold from the same jeweler equivalent to the money you deposited. At the time of maturity, the gold price is used to make the conversion. Some schemes offer you bonuses also while some others let you buy your gold in grams.

Paper Gold

  • Gold Exchange Traded Funds (ETF): One of the most popular methods of investing in paper form of gold is through gold exchange-traded funds or Gold ETF for short. These funds are traded on the major stock exchanges: NSE or BSE with gold as the underlying asset. One big advantage of this form of funds is transparency. The price at which you buy is quite close to the actual gold price. To get started on trading with these funds, you would need to open a Demat account with a stockbroker. You can choose to and then buy in a lump sum or at regular intervals also. Regular check on gold rate today can help you keep track of your purchase. There is no SIP option for Gold ETF like there is for mutual funds. Gold ETFs are best for investors who have the time and skills to dedicate to trading. You would need paperwork to start investing with Gold ETFs.
  • Sovereign Gold Bonds: Sovereign gold bonds are issued by the government. They are Digital Gold, but they are not available for purchase all the year-round. The government opens up a window of time to invite investors to buy SGBs. Typically it happens once every 2 to 3 months and the sale window remains open for a week. If you are looking to get into purchasing SGBs, you can start by purchasing earlier issues of the bonds.
  • Digital Gold: Another relatively new form of buying gold is digital gold. Digital gold is offered by online wallet platform, Paytm and also by ‘GoldRush’ by the Stock Holding Corporation of India through their website. Motilal Oswal also has its version of digital gold called Me-Gold. All forms of digital gold are offered in association with MMTC-PAMP.
  • Gold Fund: Gold funds are investments that are done in bullion and in mining companies that deal with gold. There is no need for opening a Demat account to purchase and deal with gold funds. The best thing about this form of investment is that it does not get affected by changes in gold prices, and there is no minimum charge to start buying gold funds. They eliminate the risk of theft and burglary issues. SIP, like mutual funds, is available for gold funds also. This form of investment is best suited for investors who want high risks by taking some calculated risks.


The Final Words

After reading about all the different forms of gold you can buy, you can now make headway into buying gold. Care should be taken to note that each form of paper gold and physical gold have their own set of pros and cons. While gold is comparatively safe, it will need you to do research well before you begin.