Indian families have many ways to own gold, and each one carries its own costs, conveniences and risks. Before choosing, it helps to understand what is Gold ETF is and how it differs from the ornaments in your locker or the coins you buy at festivals. It also helps to know how to invest in gold ETF alongside other choices, so you can decide where each rupee works hardest. This comparison looks at the main options with a practical, cost-conscious eye.
Jewellery: Beautiful but Expensive to Hold
A significant portion of gold bought in India is used in the form of jewellery. While it is of great sentimental value, it lacks as a good investment product. There will be making charges, which could be anything from a small percentage to a decent chunk of the price. These charges are also not recouped when selling the jewellery. Wastage and purity issues mean that it’s unlikely you will gain much when trying to resell.
Storing such ornaments can cause some concerns. Whether stored in a bank locker, which can incur an annual fee, or at home (which could lead to theft) you will not often insure household jewellery. Therefore, you could lose out completely.
This doesn’t mean we should avoid investing in jewellery, but just treat it as an ornamental asset and not an investment. Many households already have a large number of ornaments. Adding more in this way could cause overexposure.
Coins and Bars
These are a better option if you want to invest in physical gold. They won’t have any making charges like jewellery, although there will be a markup from retailers. Purity is generally assured. Just be sure to invest with trusted companies and ensure you have your invoices and packaging.
They can, however, be difficult to sell. Many jewellers will buy coins back, but will give you a discount. This could mean you’re losing out on the difference. You will also still have to store your coins and therefore incur costs. Goods and services tax will also apply. Coins would be a sensible option to hold a small amount of physical gold, but aren’t the cheapest option to build up a large position.
Digital Gold
Digital gold sites allow you to buy small amounts of gold via an app. Often you can purchase for a few hundred rupees. The gold is said to be held in a vault for you. This is a very convenient option and is great for new investors and buying gifts for festivities.
However, this product is not directly regulated by the market regulator as it is a privately run product. Therefore, it is important to understand that this product has been warned against by the regulator. The quality of storage, pricing and reliability of the site can vary. The spread can be quite large. If using this product, only invest a small amount. Be sure to read the terms and conditions thoroughly and go with a trusted provider.
Sovereign Gold Bonds
These are government issued and include a fixed interest per annum. They also have a long term and tax benefits once matured. However, recently there have not been many new issues and so if you wish to invest, you’ll likely have to buy onto the exchange. This can mean the price isn’t in line with the value and there may not be much liquidity.
An alternative is to invest in a gold fund of funds. This invests into the exchange traded units. The benefit of this is that you don’t need a demat account. You can also easily set up a monthly systematic plan with a small amount. A downside to this is that you’ll have double the costs.
Exchange Traded Units
These are a middle ground between physical gold and digital gold. They are backed by real bullion and are regulated by the market regulator. They are very transparent as they are traded on the exchanges. There are no making charges, purity issues and storage issues. All you will incur are a small expense ratio each year, brokerage and normal demat charges.
Generally there will be good liquidity throughout trading hours. The best funds will be those with high volume. Gains from listed units are currently taxed at a flat rate after 12 months. If held for a shorter period of time they will be taxed according to your slab. Tax rules change regularly so make sure to check the latest ones.
Conclusion
It really depends on what you want. If you like owning physical gold then jewellery will always be an option. If you just want a little bit of physical gold then coins are a good option. If you want to keep costs low, be transparent and be able to sell easily then listed units are a good option. If you’re just starting and want to invest small amounts, then a fund of funds may be easier.
Many investors will use a couple of these options. They may own family jewellery as a traditional aspect, whilst also investing in listed units. They may also include a little bit in a systematic plan. Whatever route you take, be honest about the overall costs and keep track. Avoid any products that promise guaranteed or phenomenal returns. Good gold ownership should be quiet, patient and well documented.