Tags: Wealth Management, Investment Lesson, Mutual Funds, Stock market, Budget, Finance, Investing, Personal Finance, Investment
Article Summary
• Gold investments help diversify risks and provide growth even in times of adverse developments in equities and debt markets.
• Returns from gold have been found to be helpful in countering inflation.
• Investments in physical gold investments in the form of jewellery, coins and bars face challenges related to purity, security, storage costs and value erosion on exits.
• Financial investments in gold through gold ETF, Gold Fund of Funds (FoF), Digital Gold and Sovereign Gold Bond deliver benefits of gold investing without challenges of physical gold.
• Online gold investments in news age gold investment options are easily accessible, quick, convenient, and possible for relatively small amounts.
Travellers have little control over turbulence of waters during long boat rides and cruises. However, investors, on taking the right steps, can typically fare far better in the sea of investing. They can ensure choppy market conditions in any asset class, or investment category, does not adversely affect overall returns in any year. This also helps you save ample amounts for major future needs. The key to achieving this is through diversification of investments i.e., making investments across asset classes such as equity, debt, and commodities like gold and real estate.
How Gold Investments Help
It is in this backdrop that investments in gold can be particularly helpful. Here is why.
Provides growth during turbulent markets Gold investments usually don’t get too affected during periods of sharp market downturns, especially in equities. They also tend to reward investors during periods when they lose confidence in financial investments such as those in equities and debt. This typically happens during serious financial and political crises.
Improves consistency in portfolio’s returns The returns from gold investments are mostly delinked from developments in equity and debt markets. They also fluctuate far less than returns from other assets like equities. This helps them contribute to reducing fluctuations in portfolio returns.
Hedge against inflation Historically, returns from gold investments, while typically trailing those from equities, typically provide returns that combat inflation. This is especially useful during times of high inflation.
Having made the case for investment in gold, the issue is how can an investor invest in gold? Of course, investors can invest in physical gold in the traditional form of jewellery coins and biscuits. However, there are options for digital gold investments which are not only convenient but also address the following challenges faced by physical gold investments.
Limitations of Physical Gold Investments
Purity To get the maximum benefit, when investing in physical gold you need to ensure that it is of the highest purity.
Storage You need to secure your investments by storing them in a locker for which you will incur regular costs.
Loss during sale Typically, during sale of jewellery, you lose out on recovery of making charges. You also lose out on account of purity and not being able to recover the payment for taxes like Goods and Services Tax (GST).
Best Ways to Invest in Gold
The good news is that investors have multiple convenient options other than physical gold. Most experts consider these as the best ways to invest in gold. These are financial investments in gold and are easily accessible online. They help you benefit from gold investment without the hassles of physical ownership. Here are some major options.
Digital gold Leading fintech companies allow you invest in digital gold through their mobile applications and websites with digital gold investment at low amounts.
Gold ETF These are exchange traded funds (ETFs) offered by mutual funds which track the price of gold. Since they are listed on stock exchanges, they can be bought and sold like other ETFs and shares.
Gold Fund of Fund (FoF) This is another gold investment offering by mutual funds which are funds that invest in other gold ETFs. Like other mutual fund units, you can sell them back to the fund house.
Sovereign Gold Bond (SGB)
These are eight-year gold bonds issued by the Reserve Bank of India (RBI) and are based on the prevailing price of gold. On maturity, you get the value of your gold investment according to the prevailing gold prices. During the term of the bond, you get taxable bi-annual coupon payments that enhance the effective yield of the bond.
Whether it is Digital Gold, Gold ETF, Gold FoF or Sovereign Gold Bond, none of them face issues of purity, storage, and value erosion during sale. This is the reason why they are considered the best ways to invest in gold. Also, since all such investments can be made online, an investor will find any digital gold investment option more convenient.
How to Buy Online Gold
If you are wondering how to buy digital gold or how to invest in digital gold, then rest assured that this question has easy answers. Leading fintech companies, many of which offer digital payment and mobile applications, make it relatively easy to invest in digital gold.
Financial investments in gold in the form of gold ETFs and gold FoFs, can also be done through the websites/mobile apps of fund houses, banks, Non-Banking Finance Companies (NBFCs) and mutual fund aggregator companies.
Another answer of how to invest in digital gold in India is Sovereign Gold Bonds (SGBs). You can invest in them through bank websites. Of course, you can invest in Gold ETFs, Gold FoFs besides SGB in the physical mode too, by visiting mutual fund and bank branch offices respectively.
Associated risks
During economic and stock market downturns, mid cap funds are typically more affected than large cap funds as mid cap stocks typically focus on a type of business or market. This risk is even higher for small cap funds since small cap companies are more vulnerable to tripping in their growth journey.
It is worth pointing out that mid cap and small cap funds can also be in the form of index funds and exchange traded funds (ETFs). Such funds follow mid cap and small cap indices, invests in stocks in the same proportion as the index and aims to reduce the tracking difference.
Advantages of digital gold investment
Apart from the convenience of investing in gold in a couple of clicks, a digital gold investment offers some more advantages. Apart from digital gold, which is not regulated by any regulatory body, Sovereign Gold Bonds are offered by the RBI while Gold ETFs and Gold FoFs offered by mutual funds are regulated by SEBI.
The minimum investment required is also far less than physical gold. 1 digital gold unit is equivalent to 0.01 gram for Gold ETF and cost of investing via SIP may start at Rs.500 for Gold ETF FoF. The costs are also lower with no costs for Sovereign Gold Bonds and 0.5-1.0% expense ratio for Gold ETFs.
To sum up, investors need to diversify their investments across asset classes to balance their portfolio. While gold investments can play a crucial role in these efforts, it is online gold investments that help investors easily get the gold investment advantage.
Gold Investment 101
How Gold Investments Help
Provide growth during turbulent markets
With gold being broadly delinked with financial markets, gold investments typically work well during sharp market downturns, especially in equities, besides during serious financial and political crises.
Improve consistency in portfolio’s returns
Besides being broadly delinked to equity and debt markets, value of gold investments fluctuate less, helping portfolio returns be more balanced.
Help combat inflation
Returns from gold investments typically trail those from equities but match or beat inflation, a quality that is handy in times of high inflation.
Challenges of Physical Gold Investments
Purity
For maximum benefit, you need to ensure highest purity.
Storage
They need to be stored securely and you incur regular locker costs.
Loss during sale
During sale you are likely to lose out on account of purity, making charges and tax payments.
How Online Gold Investments Help
Bypass common issues of physical gold investments
Financial investments in gold in the form of Gold ETF, Gold Fund of Funds (FoF), Digital Gold and Sovereign Gold Bonds don’t face the issue of purity, storage, and loss during sale.
Enhanced Convenience
In a few clicks, you can make these investments which involve low expenses and let you start with small amounts.
Protection for Investors
Unlike physical gold, financial investments in gold through Gold ETFs and Gold FoF are far better regulated by mutual funds regulator, Securities and Exchange Board of India (SEBI) while Sovereign Gold Bonds are issued by RBI.
FAQs
How are gold investments taxed?
Capital gains from any gold investment including physical gold, Gold ETF, Gold Fund of Funds (FOF) and Digital gold are taxed at the applicable income tax rate. For Sovereign Gold Bonds, there are no capital gains tax if held to maturity and capital gains are taxed at applicable income tax rates after a period of 5 years and till the eighth year. The annual coupon payment is taxed at the applicable income tax rate.
How much gold investments are ideal for a portfolio of investments?
Experts suggest the level of up to 10% of overall investments.
Disclaimer:
The information set out above is included for general information purposes only and is not exhaustive and does not constitute legal or tax advice. All complaints regarding Mutual Fund can be directed towards visit www.scores.gov.in (SEBI SCORES portal). Readers are requested to make informed investment decisions and consult Chaitanya Financial Consultants – 9000628943 / mfd.mmr@gmail.com to determine the financial implications with respect to investing in Mutual Funds.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
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