Should Investor Consider Investing in Gold ? 🤔

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Introduction

Investment nowadays is not a choice but a necessity, Having said that one must be aware of the investment avenues available around us and know which one suits His/ Her needs. Gold and Fixed Deposit Instruments were popular investment instruments some time ago. Bank Fixed Deposit Instruments has lost its sheen mainly due to the decreasing interest rate on the deposits. On the other hand Gold still occupies some place in an investors portfolio.

Lets now look at various investment options available to invest in Gold

Instruments:

  • Physical Gold

      This mode of investment is self explanatory where the physical gold is purchased from the retail typically in the form of jewelry and kept with the investor. Lets understand its pro's and Con's

        Pro's
    • Since the gold is with the investor he has the full freedom to sell it at any point in time or in other words liquidity is not an issue.
        Cons
    • Since the Gold is purchased from the retail store the investor has to spend some money on the making cost of the jewelry
    • Investor has to ensure the safety of the gold especially while storing it
    • The gold so purchased may not be absolutely pure
  • Digital Gold

       This mode of investment in contrary to physical gold, purchase will be made in digital, in the form of Units where 1 unit corresponds to 1 gram of gold. There are different UPI Apps which provides this facility

        Pro's

    • Since the gold is purchased in the digital form investor need not worry about the storage of the gold.   
    • There is an option to receive the gold physically while redeeming the units       
       Cons:
    •  Investor has to give Tax while selling the units and some charges will be levied for the holding cost.
    • If we take tax and holding cost into consideration the Net return on this investment option is very less or comparable to physical gold.

  • Gold ETFs
        Gold ETFs can be considered similar to Stocks where an investor mainly invests money in the company which is mainly involved in gold business. This can be traded as normal stocks in the Stock Market.

        Pro's
    • Yields a better return than the above two forms of investment in gold
    • It is possible to earn a higher return than the physical  gold
           Cons
    • Liquidity is determined by the demand of the units in the Share market
    • This mode is much riskier compared to other forms of investing as it is linked to Stock Market.
    • Cost of Managing DEMAT Account
  • Gold Mutual Funds

        These are fund Houses which manage and invest in Gold ETFs, so indirectly an investor is investing in the ETFs

            Pros

    • This is less riskier than the ETFs because there are professional fund managers which manage these funds
    • No need to have a DEMAT Account to start investing whereas the ETFs require a DEMAT Account
         Cons

    • It has a higher expense ratio because of the expenses incurred for managing the fund
    • The income generated will be taxable on redemption.

  •  Sovereign Gold Bonds
        These are government backed bond scheme which is issued by RBI(Reserve Bank of India).This is held in the form of paper and hence there is no other cost typically associated with gold.

        Pros:

    • Since its government backed Investment scheme its highly secure.
    • There is a fixed 2.5% interest on the investment amount which is paid every year on top of the gold appreciation price.
    • Total amount is Tax free if redeemed after the lock in period which is typically 8 years but an investor has an option to redeem it after 5 years.
       Cons:

    • There is lock-in for this investment but whether it means that the investor has no other option? NO. There is another way of holding this investment in the DEMAT form so that it can be traded in the Stock Market
    • If this is redeemed before the locking then the gains are taxable.
    • This can be only purchased on selective periods when the bonds are issued by RBI.


Summary:

Considering all the factors Sovereign Gold Bond out performs the rest in terms of returns on investment and safety barring the liquidity. If an investor is looking to invest for a mid to long term goal and should have the safety then SVG is an ideal investment option as it can generate inflation beating returns over long term.                               

Do comment below which investment option did you take and also posts your suggestions


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