Gold Investment in India

Let us discuss various forms of investments in gold like physical gold, gold funds, sovereign gold bonds, digital gold, etc. in detail for a piece of better knowledge and understanding.

Reasons to Invest in Gold in India

A normal investor looks for 3 major things before investing in any kind of investment, that is:

• Profitable returns

• Maximum safety, and

• High-liquidity

India and its fetish for gold for ages is no hidden truth. Even though Indians need no solid reason to invest in gold, still here are some important reasons one can keep in consideration of investing in gold:

• Gold holds a significant place in India’s culture with eternal value and a significant way of preserving wealth.

• It is one of the safest ways of investing.

• It is good for portfolio diversification as gold is very different from other asset classes.

• It is known as a crisis commodity as it mostly performs well no matter what the inflation rate is.

• Gold offers excellent liquidity and flexibility to investors.

Types of Gold Investments in India

With the digitalization and recent developments in the financial market, there are various ways of investing in gold apart from buying physical gold. Here are the following ways one can choose to invest when it comes to gold:

1. Physical Gold

   The cliché way of investing in gold is the physical form of investment. Physical gold can be bought in many forms like gold coins, jewelry, ornaments, bullions, etc. which are considered as the purest form of gold. These are considered the best kinds of investment as there is no adulteration and can be sold at any point in time.

   The only issue that the physical form of gold rises is the constant vigilance and hence need to be kept in an extremely safe and secure environment. Keeping physical gold safe is a matter of concern and this is the main reason investors have started putting their money in other forms of gold investment.

2. Gold ETF

   Gold Exchange Traded Fund or Gold ETF is treated as a commodity-based mutual fund. these ETFs invest in assets like gold and are used for trading in the stock exchange. Physical gold, both in the paper form and dematerialized form, is represented by Exchange Traded Funds, and investors, instead of purchasing the physical metal, opts for ETFs.

   In this case, an investor invests in stocks rather than gold, and in return, they receive units that are equal to cash. Investors who do not wish to buy the actual physical form of gold but are willing to boost their income, attain flexibility, and have high liquidity through stock trading should opt for gold ETFs.

   As the transactions of gold ETFs are regulated by SEBI (Securities and Exchange Board of India), it comes with complete safety and transparency for investors. Gold ETFs are one of the simplest forms of trading that also provides portfolio diversification to an investor. Like any other trading, it is important to hold a trading and Demat account before purchasing gold ETFs.

3. Sovereign Gold Bonds

   Substitute for physical gold, Sovereign Gold Bonds are government securities designated in gold grams issued on behalf of the Government by the Reserve Bank of India. The terms and conditions are regulated from time to time by the RBI (Reserve Bank of India) making it a safe and secure investment. The subscription of SGBS (Sovereign Gold Bond Scheme) is pre-announced by the Government through the press release and hence can be bought only during that window.

   As per the RBI rules, all applications for the purchase of SGB must be attached with the individual’s PAN Card number issued by the Income Tax Department to make it authentic and safe from any type of forgery.

   The minimum investment needed to purchase the SGBs is 1 unit, that is, 1 gram of gold. The maximum however varies from one entity to another, that is,

   • 4 kilograms for individuals

   • 4 kilograms for Hindu Undivided Family (HUF)

   • 20 kilograms for trusts and similar other entities

   • 4 kilograms applied to 1st applicant in the case held jointly

4. Gold Mutual Fund

   A variant of gold Exchange Traded Funds, gold mutual funds are a type of scheme that focuses on investment in ETFs and other related assets. In elaboration, gold MFs track down the value of gold ETFs that in turn reflect the value of physical gold. Gold mutual funds work based on the performance of the gold ETFs which means any change in the NAV of gold ETF directly affects gold Mutual Funds.

   One major difference between the gold ETFs and gold Mutual Funds is that, in the latter, a Demat account is not required to carry out the transactions. Investors have an option to invest in gold mutual funds through SIPs (Systematic Investment Plans) also. 

Documents Required to Invest in Gold

Following important documents are required in different forms of investment when it comes to gold:

• PAN Card, if the transaction is above Rs. 2 lakhs while purchasing physical gold

• Account and Demat account with the same brokerage firm while investing in ETFs (Exchange Traded Funds)

• KYC documents along with Aadhaar card, PAN Card, etc. while investing in Sovereign Gold Bonds

Bottom Line

Each and every kind of investment comes with its own risks and returns. Investor needs to understand their personal needs and requirements, their future goals, their assets, and other important conditions carefully before making any kind of investment.

Investments should be made according to the personal appetite of the investor and not by following anybody else.