Gold investment: 4 options you can look at if you love the yellow metal

For many years, gold has been considered an easy-to-invest avenue to build financial security, especially physical gold, and a hedge against inflation.  

Investing in gold has evolved over time, and investors now need not look at just the purity of physical gold, but can also invest in other forms such as gold exchange-traded funds (ETFs), digital gold and even sovereign gold bonds (SGBs). These other options have low transaction costs, taxation, and redemption flexibility.  

Himanshu Kohli, Co-founder of Client Associates, said, “Gold is a valuable asset that promotes portfolio diversification and helps mitigate volatility, leading to long-term wealth creation.”  

There are four primary ways to invest in gold:   

Physical Gold: This involves buying gold involves, coins, bars, or jewellery. However, this traditional investment method faces challenges like storage, impurities, and additional costs. Further, when you purchase gold jewellery, you will have to pay goods and services tax (GST) at the prevailing rates. Keeping physical gold in a locker also attracts charges, which may vary depending on the bank.  

Conversely, in an emergency, you can avail of loans against gold jewellery. The lender can disburse loans for up to 80 per cent of the value of gold at a lower interest rate.   

SGBs: These are issued in multiples of grams with a minimum investment of 1 gram of gold. The value of each unit of gold is considered to have 999 purity level from the underlying gram of gold. It is one of the cheapest ways of buying gold as there is no GST or other charges added to the issue price. Besides, SGBs come with sovereign guarantees. There is no physical backing of gold in SGBs.  

Kohli says, “These bonds, issued by the Reserve Bank of India (RBI), represent one gram of gold. They offer tax-free gains on gold price appreciation and a 2.5 per cent annual interest rate. Traded in demat form, they provide liquidity on stock exchanges.”  

Gold ETFs and mutual funds: These funds invest in gold bullion, tracking its price. ETFs are traded on stock exchanges like stocks, and gold mutual funds function similarly. While Gold ETFs do not have any fixed tenure, few fund houses allow you to redeem it as physical gold. However, you need to be cautious while converting ETFs into physical gold, as you might not get the same quantity when converting minimum prescribed quantities of ETF units into physical gold.   

Digital gold: This emerging method allows for investment in certified pure gold through certain payment gateways, e-wallets, and financial institutions. Digital gold’s returns are based on the market price of physical gold. It offers the flexibility to buy in small denominations, sells anytime, and allows for physical delivery. But remember, unlike SGBs, digital gold attracts a GST of 3 per cent along with a mark-up of 2.5–3 per cent, based on the platform you buy from.