Best Gold Investment Tips for Beginners

Summary

Gold never gets old; it has always been the preferred currency. However, in today's digital world, there are now digital and virtual avenues for gold investment. This article will shed light on some of these digital platforms. 

So you’ve been thinking about buying gold as a part of your investment portfolio and want to know how to invest in gold? Then this blog is for you. Investing in gold has traditionally held a significant place in Indian households both as a safeguard against inflation as well as economic uncertainty. Let us explore the various gold investment options currently available in India.

Conventional ways to invest in gold

We will first look at the more traditional forms of investing in gold in India. Even though these are fairly simple and more common ways to invest in gold, they come with their own set of pros and cons.

Jewellery: Although this is one of the most popular forms of investment, it’s also the most expensive strategy to choose. Beyond the sentimental value it holds, people often underestimate the impact of making charges, which can substantially increase the buying price and represent a sunk cost when the item is sold.

Gold bullion/ coins: While the making charges for gold coins and bars are somewhat lower, we must still consider the potential risks of theft and the expenses associated with storage.

Gold schemes: This is one the best ways to invest in gold. Deposit a certain sum of money with a jeweller every month, usually for a set period ranging from a year to even two years. When the scheme matures, you have the option to buy gold for the total invested amount. But be careful when choosing the jeweller.

Best ways to invest in gold for beginners today

To overcome the limitations of physical gold, there is now a variety of alternatives available, including digital gold, sovereign gold bonds (SGBs), gold exchange-traded funds (ETFs) and gold mutual funds (MFs), which have become the leading methods for gold investment. Let's explore these options:

Digital gold: This is one of the more popular methods for investing in gold. Digital gold is supported by actual physical gold. In India, you can purchase digital gold through your bank's app or other platforms with as little as INR 1 to get started. You can conduct digital transactions with gold at prevailing market prices and exchange it when you decide to sell. During these transactions, you have the choice to either redeem your investment's return value or obtain physical gold in exchange for that value. It's worth mentioning that not all platforms offer the option to acquire physical gold.

Sovereign gold bonds (SGB): SGB are issued by the Reserve Bank of India (RBI) on behalf of the Government of India. These bonds are available for purchase through various channels such as banks, post offices, the Stock Holding Corporation of India, and authorized stock exchanges. They are released in limited tranches each year. You can also apply for these bonds online via IDFC FIRST Bank's SGB investment page. The minimum amount you can invest is 1 gram, while the maximum allowed for an individual is 4 kg.

Investors can benefit from a guaranteed 2.5% annual interest, in addition to potential gold price appreciation. The SGB scheme has an eight year tenure but can be redeemed or cashed in starting from the fifth year. SGBs held in Demat form can be traded on stock exchanges among eligible investors.

Gold Exchange-Trade Funds (ETF’s):  Gold ETFs are essentially mutual funds that mirror the local price of physical gold. Your investment is used by the fund management company to buy actual gold bullion. These ETFs are publicly listed and traded on stock exchanges, providing a secure and regulated means of investing in gold. When you invest in gold ETFs, you can buy or sell units on the stock exchange, similar to how you trade stocks. The minimum investment requirement is just one unit of a gold ETF, which represents the value of one gram of physical gold. Thanks to their listing, gold ETFs offer high liquidity and can be easily traded in the stock market.

Gold Mutual Funds (MFs): Gold MFs allocate investments to units provided by Gold ETFs. Because the primary asset is physical gold, the fund's worth is directly tied to the gold price. It operates in a manner similar to other mutual funds.

Gold Fund on Funds (FoF’s): Fund of funds are, at their core, funds that invest in a combination of mutual funds. This investment approach involves a slightly higher level of risk and comes with increased expenses. In this specific fund, the investment is focused on gold ETFs. These funds transfer the cost ratios of the individual funds they invest in, in addition to their own charges. This results in a somewhat more expensive option; despite the diversification it offers.

To put it simply

Traditional ways of investing in gold such as jewellery, bullions or gold schemes come with their own setbacks such as 

• making charges
• storage expenses
• requirements of origination and purity certificates

 In this digital age, our options have now expanded to virtual investments in gold. These are:

• Digital gold
• Sovereign gold bonds (SGB)
• Gold exchange-traded funds (ETF’s) 
• Gold mutual funds (MF’s)
• Gold fund on funds (FoF’s)

However, there is no one-size-fits-all here. Every investor must consider their unique goals, choices, and risk appetite to determine the best gold investment option. Consulting with experienced financial advisors can be highly helpful in this quest.