The yellow precious metal Gold has been valued as an investment from thousand of years. It has been valued as a precious commodity and currency as well. Gold holds huge sentimental value especially amongst Indian consumers. With the festive season just around the corner, there will be surge in the demand for Gold, because investing in Gold during the Diwali season is considered auspicious in India and thus you can see well decorated jewelry showrooms welcoming customers by offering several lucrative offers and schemes.
Gold is preferred as an investment by investors because of its ability to be used as a hedge instrument against the currency inflation, deflation and devaluation. This makes Gold a safe haven during the times of economic uncertainties similar to what we experienced during the nationwide lockdown which was implemented to control the coronavirus pandemic.
Signup Now : Invest in Gold with the help of Prime Gold
The Gold market is also a highly liquid market. There are a number of ways in which you can invest in this precious metal. Investing in Physical Gold in the form of jewelry or coins or by investing in Gold ETFs. Let us discuss about both of these investment modes in details and find out which one of the two will be the perfect bet for you for investing in Gold this Diwali.
Table of Content
Physical Gold or Gold ETFs - Know How to Invest in Gold in Diwali [2020]?
- Investing in Physical Gold
- Investing in Gold ETFs
- Where should you Invest?
Let us discuss about the most preferred modes for investing in Gold and try to find out the most suited one for you.
Investing in Physical Gold
Investing in Physical Gold i.e. gold in the form of jewelry, coins and bars is the most preferred investment option during festive season because it provides you the most direct exposure to Gold. This is often referred to as bullion, which is generally gold in a bulk form. The value of Gold bullion is derived based on its purity and mass and not by the monetary face value. Even after having a monetary face value for a certain Gold commodity, its market value will be based on the value of its purity or fine gold content.
Physical gold can be bought from nationalized government banks, jewelers or gold dealers where each one of these will surely offer you the same commodity for different prices. Therefore, you need to do a proper research before finalizing any deal. Purchasing physical gold requires you to pay the full price.
Physical gold is often associated with many risks the biggest one being the risk of theft and robbery. There are many extra costs associated with physical gold ownership like the storage costs, making charges on jewelry and applicable taxes. While these costs may appear to be negligible for an investor planning a small investment, these may turn out to be a substantial amount for investors planning to invest for larger exposure.
Investing in Gold ETFs
Gold Exchange Traded Funds of Gold ETFs as they are commonly known as entirely different from physical gold. They can be bought on stock exchanges similar to stocks. The main advantage of investing in Gold through ETFs is that they provide the investors an access to Gold and at the same time avoid all the extra costs and inconvenience associated in the form of storage costs, security risks, making charges etc. which are present in case of Physical Gold. However, Gold ETFs charge the investors every year with an annual expense ratio, which is deducted from the total investment value. The expense ratio is basically the fee charged by funds for recovering the costs of administration and management. For example, the largest Gold ETF in the market has an expense ration of 0.40 per cent which means that for an investment of INR 1,00,000 an investor would pay INR 400 every year as the expense ratio.
Another additional cost associated with Gold ETFs is the commission charged for buying and selling of Gold ETFs. Though the amounts charged are very nominal, they can add up to a substantial amount if you are an active trader.
There are certain taxes as well which are levied on Gold ETFs, which are long term capital gain tax and short-term capital gain tax. For example, for an investment for a tenure of 36 months or more an investor will pay a capital gain tax of 20 per cent along with the applicable indexations.
Where should you Invest?
Investing in Gold ETFs can suitable for investors who are looking forward to track and reflect the actual price of gold in real time. Gold ETFs provide you with the benefit of trading in gold without actually owning it. You get access to numerous market opportunities related to the performance of actual Gold. Also, it is easier to liquidate Gold ETFs compared to physical Gold. Gold ETFs have a track record of outperforming the benchmark market indices I the last few years. Also, the brokerage charged on these ETFs range between o.5 to 1 per cent only.
Physical Gold is considered auspicious in our country and it is an important constituent of one’s life. Indian marriages are considered to be incomplete without Gold. Physical Gold should be bought only in a very limited amount and not as a part of your regular investment. It does offer you financial security for those tough situations as well, but the applicable risks and charges don’t make it a preferred option for regular investments when compared with ETFs.
Conclusion
It is important to note that whether you invest in physical gold or Gold ETFs, your gold investments should be within a range of 5 to 10 per cent of your investment portfolio. It not only helps you in maintaining a stable return but also helps you achieve a robust investment outline. However, it must be noted that no investment is risk free and investing in Gold often comes with a set of risks associated. It is recommended to get your risk profile analysis from a certified investment advisor to know about the amount of risk that you are capable of taking in your investment journey.
Happy Investing!
