Gold has been one of India’s oldest forms of investment. Its strong selling factors include high liquidity and inflation-beating capacity, as well as charm, grandeur, and so on. When the markets are choppy, gold prices rise. Though there are times when gold prices dip, they never linger long and always make a strong comeback.
Gold purchases are not uncommon in Indian households. It has been a part of the tradition almost every Indian household actively takes part in. According to surveys, India has the highest domestic gold reserve globally. Weddings and childbirth are two occasions when purchasing gold is considered auspicious and has sentimental values attached to it.
The general belief being the element brings good luck and can double as a financial backup when needed. Gold, like real estate, is a physical asset with a shine that financial or online gold investment assets haven’t tarnished.
This blog dives into this penchant for gold Indian households have and more!
Save your money in Gold by using Multipl App.
What Are the Perks of Investing in Gold?
The fundamental rationale for investing in gold is to diversify one’s portfolio. In addition, it is regarded as a perfect hedge against the possible volatility of equities investments and inflation in this context.
Over the previous 40 years, gold has averaged 9.6% annual returns, with only 8 % occurrences of negative annual returns.
Apart from the profits, another important reason to use gold as a hedge is that it has historically exhibited lower volatility than equities investments throughout time. Moreover, it has shown an inverse relationship with equities in many situations, i.e., when equity markets have experienced a downturn, Gold returns have historically been strong.
The following are some of the reasons why gold is considered a good investment:
- Gold is an inflation-beating investment; thus, it is worthwhile to invest. In addition, the investment returns have tracked inflation over time.
- Equities investments are opposed.
- Gold, for example, would do well if equities markets began to decline. Including Gold in your investment portfolio will act as a hedge against overall portfolio volatility.
India’s Gold Investing Choices
You can buy Gold in either real or online gold investment form. Gold can be held in the form of jewelry, coins, bars (bullion), and other physical forms as an investment. Through these investments, you can save your money in gold for better returns.
- Charges for design/production (10 %)
- Expenses for insurance and storage (3 %to 4 %annually)
- GST stands for Goods and Services Tax (3 %of purchase price)
However, there are a few important drawbacks to buying the element in the form of bars or coins:
- Purchases are costly due to making/designing fees.
- Because of security and insurance regulations, storage costs must be paid.
- Physical gold depreciates over time in the case of jewellery.
To get around the constraints of physical gold, you can invest in gold ETFs, Digital Gold, Gold Mutual Funds, and Sovereign Gold Bonds, among other online gold investment options. Each of these investing alternatives is described briefly below:
Gold (ETFs) Exchange Traded Funds, are traded on a stock exchange and can be purchased and sold by stock market participants. Investments in Gold ETFs also imply real gold ownership with a purity of 99.95 percent, which can be transferred to physical assets once 0.5-1kg worth of gold units has been reached.
- Total costs, including Expense Ratio, of 0.5 %to 1 %per year
- Charges for holding a Demat account
Gold Mutual Funds
A fund that invests in gold exchange-traded funds (ETFs) and tracks their performance to determine returns. This is better suited to gold investments made exclusively for monetary gain rather than actual gold possession. ETFs demand a minimum purchase of 1 gram of Gold, but these funds do not. SIPs start at INR 1,000 per month.
- Total annual fees of 0.6 %to 1.20 %for gold mutual funds, which include: 0.5 %to 1 %for gold ETFs + (0.1 %to 0.2 %for managing the Gold )
The National Spot Exchange Limited (NSEL) introduced e-gold to allow investors to purchase Gold in smaller amounts (1mg, 2mg, etc.). E-gold investments don’t require a separate Demat account, and the Gold is priced in accordance with the Indian gold market. This is in disparity to ETFs, which are frequently influenced by global market conditions.
- Spread (approx. 6 percent)
- GST (3% of the purchasing price)
The Sovereign Gold Bonds (SGBs)
The Reserve Bank of India and the Government of India have released sovereign gold bonds, which are government securities that issue Gold in 1gm denominations. Cash on maturity allows you to earn a fixed interest rate every fiscal year. Plus there are no obvious costs.
Gold-backed Bonds are Subject to Taxation
SGB (Sovereign gold bonds) interest is taxed according to your current tax bracket. However, because of the increase in Gold’s price, the capital gains component is tax-free. Therefore, SGBs have advantages over conventional gold investments regarding long-term holding and capital gains taxation.
Following are our important takeaways after evaluating the risk, minimum investment requirements, returns, expenses, liquidity, availability, and taxation restrictions of various Gold investment vehicles in India:
- Sovereign Gold Bonds are the ideal option if you plan to invest for the long-term. This is because if you invest for at least five years, you will earn not only regular interest payments but also be eligible to make tax-free redemptions. Finally, when these bonds are redeemed at maturity, which is after eight years, they are tax-free.
- E-Gold or Digital Gold is an ideal choice if you only wish to invest in Gold for a short-term because they have a high liquidity and availability.
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