Gold has been fascinating and attracting mankind from ages, With it’s limited availability and high demand it also becomes valuable. People consider gold as a symbol of purity, prosperity and wealth. Indians have rich tradition of buying gold on different occassions like marriage, festival and other traditional event. Also gold investment is considered as one of the safest investment option which not only provide capital protection but also decent return’s. Most of the gold stored is in the form of jewellery, it is estimated that almost 50% gold investment is in the form of jewellery.
With time the way of investment in gold has also changed, Now there are lot of option’s available to invest in gold. In this article we are going to discuss different Gold Investment Plan or Gold investment scheme and help you create your gold investment plan.
Some Facts About Gold & Gold Investment
Before discussing about various gold investment scheme, gold investment plan, here are some interesting numbers and facts about Gold Investment:
- Almost 200000 tonnes of gold has been mined so far by mankind.
- 50% Gold is in the form of Jewellery.
- 20% Gold is with MF, ETF & in the form of coin.
- 18% Gold is with Central Banks.
- 12% Gold is in real world application like chip, semiconductors, electric equipments etc.
- 9% has been CAGR of gold in the last 40 years. 10% CAGR in SIP form.
Different Option’s To Invest In Gold
Here are different options of Gold Investment
- Physical Gold
- Digital Gold
- Gold Mutual Fund’s & ETF
- Sovereign Gold Bond (SGB’s)
Now, let us discuss each of these options one by one on different parameters like availability, minimum investment, risk, cost, returns, taxes.
1. Physical Gold
Availability:
Physical Gold can be bought from Jewellery shops, Banks, Authorized Dealers, Online Stores. Mostly people prefer to buy the Gold in the form of jewellery, coins, bars. Indian household held 25,000 tonnes of gold in thier house.
Risk:
Buying physical gold can give you a mental satisfaction and happiness but there are certain risks involved with it like, Theft, Tampering, Wear & Tear, Loss during making process, storage. So, it can be very risky to held physical gold. You should have proper storage facility, and security for gold. Also you should be purchasing it from trusted sources only.
Minimum Investment:
Physical gold can be bought at a price of 0.5 gram of gold.
Cost:
Design and making : 7-12%
Storage cost : 3-5%
GST : 3%
Total cost 10-20% above gold price.
Returns:
Considering the above costs physical gold gives returns approx. 5% CAGR.
2. Digital Gold
Availability:
Digital gold is sold by most fintech companies like Paytm, Phonepe, Googlepay, Amazonpay etc. It is easily available and bought.
Risk:
Lack of regulatory framework and oversight from regulatory organization like RBI or SEBI. Also it is difficult to ensure the integrity of gold reserves backing the digital gold.
Minimum Investment:
Digital Gold can be bought for a minimum of Re. 1
Cost:
GST : 3%
Buy Sell Spread : 5%
Returns:
If sold after 3 years : 6.8%
If sold after 5 years : 7.7%
If sold after 10 years : 8.3%
3. Gold Mutual Funds & ETF
Availability:
Gold mutual funds can be bought through demat accounts or directly on mutual fund companies website.
ETF’s can be bought through demat accounts and they can also be traded like stocks.
Risk:
There are not much risk as these are backed by physical gold & valued as per SEBI defined process backed by real gold.
Minimum Investment:
Gold ETF : 0.01 gram
Gold MF : Re. 100/-
Cost:
Gold ETF : Expense Ratio , Broking Charges.
Mutual Funds : Expense ratio.
Returns:
Returns of gold ETF and Mutual Funds can be around 8.4%
4. Sovereign Gold Bond
Availability:
SGB’s are offered by RBI in tranches after every few months. These can also be traded in secondary markets through demat accounts.
Risk:
These are not backed by physical gold. These are derivative and the price of gold is used to define a value to the bond. Only risk is if Govt. defaults and unable to pay the principle and interest.
Minimum Investment:
Sovereign gold bonds can be bought at a price of minimum 1 gram.
Cost:
No expense ratio or additional costs.
Electronic mode eligible for discount of Rs. 50/gm
Returns:
2.5% per annum additional fixed interest on initial investment twice a year.
Returns 11.5% ~
Conclusion
With the help of above points we can say it clearly that the best return we can get from Gold investment is through SGB but there are some drawback also. Investment can be done for a fixed period of 8 years, though you can sell it in secondary market after 6 month of issuance but at a discount. RBI allows premature redemption after five years. So best value you can get through SGB is when you hold the bond till maturity.
The Next best option is ETF or Mutual Funds as there is no restriction in buying or selling of gold. So you can consider this Gold Investment plan option if you want.
Digital gold can be risky because of no regulatory oversight and charges.
Physical gold can be considered but there is a limit to it. Only limited amount of gold can be purchased in physical form.
The above points might be helpful to make your gold investment plan. Do your own research and take professional advice if required.
That’s all for now, Have a great financial journey.