How to Start Investing in Gold in India?

It is a well-known fact that India is the second-largest buyer of gold in the world, right after China. The demand for gold in the country has always been on an upward path, owing to its status as a safe-haven asset. Historically speaking, the price of gold has always appreciated and over the course of the last few decades, it has delivered better returns than many prominent stocks and bonds. Furthermore, it serves as an excellent hedge against inflation and is a superb investment for capital appreciation.

Given that there are so many advantages to investing in gold, it is only common to see that more and more people are choosing to park their money in the precious metal. If you are new to this world, then don’t worry. In this article, we will tell you some of the best ways to start investing in gold in India.

  • Gold Jewellery

This is, by far, the most popular way in which Indians invest in gold. This practice has been around for ages now and is likely to remain in the future as well. Whether it is during a festival or wedding, jewellery buying has always superseded other traditional means of investment when it comes to gold. When you do go to purchase gold jewellery, be sure to check for the BIS Hallmark, weight, price per gram, bill receipt, and other crucial points. The market for gold is very diverse in India and you want to be 100% sure of your investment, in terms of authenticity.

However, at the same time, do keep in mind that gold jewellery is often accompanied by high wastage and making charges, above and beyond the actual price of gold. Therefore, when you do go to sell your jewels, you will not get those charges back.

  • Gold Bars and Coins

If you are looking at gold purely from an investment perspective, then bars and coins are the way to go. They do not carry any wastage or making charges and additionally, they are comparatively easier to store than jewellery. When you do decide to sell your holdings down the line, you will stand to receive a full return on your investment.

Gold bars and coins can be bought from any recognised jeweller and bank. However, the former option is far more superior since jewellers can purchase the gold coins back from you. Once again, make sure to do your due diligence here and ensure that you are buying the coins and bars from a registered, authentic retailer.

  • Sovereign Gold Bonds

In a bid to promote the habit of savings and investment among people, the government has launched the Sovereign Gold Bond scheme in conjunction with the Reserve Bank of India (RBI). As per the scheme, you can buy gold in multiples of per gram, starting with a minimum amount of 1 gram. However, you will never actually hold physical gold. Instead, you will be issued a bond backed by the RBI that can be redeemed after eight years although, you can choose to exit from the fifth year.

The bond can be redeemed on the maturity date and the redemption price is linked to that day’s gold price. In addition to enjoying the capital appreciation in gold, your investment will also earn an interest of 2.50% per annum. And here is the best part – if you hold your investment till maturity, then you will be exempted from Capital Gains tax.

The bonds are issued on a regular basis by the leading banks in the country. For more information, you can visit the RBI website.

  • Gold-Backed Equities

So far, we took a look at the direct ways of investing in gold. Now, we will look at some of the indirect ways of investing in gold, starting with gold-backed equities. These are nothing but shares of those companies that are engaged in the business of extraction, mining, refining, and marketing of gold. The idea here is not to invest in gold directly, but to invest in those companies that deal with it.

In the aforementioned options, the performance of your investment will depend on the price of gold. In this case, however, the performance is linked directly to the performance of the company. Therefore, investing in such an instrument requires a good understanding of the company’s fundamentals and a little bit knowledge about the markets as well. The risk here is high but so is the reward.

  • Gold Exchange-Traded Funds

Gold Exchange-Traded Funds, also known as gold ETFs are essentially open-ended mutual funds that can be traded on the stock markets. These funds collect money from the investors and invest it in gold. Once again, you will never actually get to own any physical gold thus essentially eliminating the need for storage. The performance of the ETFs is based on the performance of gold.

Gold ETFs are among the most popular ways to invest in gold online in India owing to their convenience. However, these funds incur management expenses, expense ratio and in many cases, you will have to pay a brokerage fee as well. These numbers differ across various fund houses so if you do choose to invest in gold ETFs, be sure to research thoroughly and find a fund that suits you the best.

Final Thoughts

While gold certainly serves as an excellent investment, it is important to not put all your money into the precious metal. It should form a part of a diversified portfolio and the asset allocation should not be more than 15-20%. While the price has always appreciated in the long run, the returns here may not exceed than those delivered by other investment vehicles. Remember – gold is an ideal long-term investment and for best results, it is advisable to stay invested for a minimum period of five years.