How to Invest in Gold in India – Bonds, ETFs and more

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21st Century Gold Investing tools

Hope you guys are doing well on our pursuit of Financial Freedom. In our last conversation we discussed about the Act of generating passive income via Dividends and its significance (Link). In this article we talk about the many ways you can invest in gold in India without owning any physical gold or in other words – how to buy gold and reap benefits of price rise without actually buying any gold.

Recently Gold is in headlines for its
sudden price rise. Today we going to discuss “The Act of Investing in Gold : 21st
Century Gold Investment tools ”.

Related: More portfolio diversification ideas

We INDIANS adore gold. Newly wedded brides are given enough jewellery to break their necks. Peasants store their pitiful savings in trinkets. Wise-guys sport rings like knuckle-dusters and tycoons with broken balance-sheets offer gold at temples in return for redemption.

Even as economists and officials beg them not to, Indians splurge on the shiny stuff—in 2011 India imported more gold than any other country—about 1,000  tonnes, or a fifth of global annual supply. That is the same amount that sits in the central bank vaults of Switzerland. Why do Indians love gold? Read more at https://www.quora.com/Why-do-Indians-love-gold

Gold — what can it not do, and undo? — William Shakespeare

Historical gold rate trend in India

It’s important to note that the gold
prices would fluctuate during the year and the amount mentioned below is a
representation of the average price for that year.

With the exception of a few lows between some years, it can be seen from the table that the gold price trend has historically been on the rise, lending credit to the argument that gold is a safe investment over long periods of time.

As of December 2020. Gold has given 20+% returns in 2020 and that is after a staggering ~25% returns in 2019.

The ‘Golden question’ here is, how can one invest in gold?  Traditionally, it was by buying physical gold in the form of coins, bullions, artifacts or jewelry. Nowadays, there are more advanced forms of gold investing such as below

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1. Sovereign Gold Bond

Sovereign Gold Bonds are Government securities denominated in multiples of gram(s) of gold. They are substitute for investment in physical gold. To buy the bond, investor has to pay the issue price in cash to an authorized SEBI Broker. On redemption, cash is deposited into the investor’s registered bank account. These Bonds are issued by the Reserve Bank of India on behalf of the Government of India and are traded on stock exchange. Read more at :

https://www.nseindia.com/products/content/equities/sgbs/sgbs.htm

Key features :

  1. The bond bears an interest at the rate of 2.50% (fixed rate) per annum on the nominal value.
  2. Interest will be credited semi-annually to the investor’s account and the last interest will be payable on maturity along with the principal
  3. Investors will earn returns linked to gold prices
  4. Bond carry sovereign guarantee both on redemption amount and on the interest
  5. Minimum investment: 1 gram. Maximum investment: 4 Kgs for individual, 4 Kgs for HUF and 20 Kgs for trust and similar entities per fiscal (April-March)
  6. Available in DEMAT and paper form
  7. Tradable on National Stock Exchange of India Limited
  8. Issuance through trading members of NSE

As of July 8th, here is the latest on SGB. The subscription for SGB will be open as per following calendar. The rate of SGB will be declare by RBI before every new tranche by issuing a Press Release.

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Sovereign Gold Bond Scheme 2020-21

Government of India, in consultation with the Reserve Bank of India, has decided to issue Sovereign Gold Bonds.  The Sovereign Gold Bonds will be issued in six tranches from April 2020 to September 2020 as per the calendar specified below:

Tranche Date of Subscription Date of Issuance
 Series I  April 20-24, 2020 28-Apr-20
Series II  May 11-15, 2020 19-May-20
Series III  June 08-12, 2020 16-Jun-20
Series IV  July 06-10, 2020 14-Jul-20
Series V  August 03-07, 2020 11-Aug-20
Series VI  Aug.31-Sept.04, 2020 8-Sep-20

2. Gold ETFs (exchange-traded funds) 

Gold Exchange Traded Funds (ETFs) are simple investment products that combine the flexibility of stock investment and the simplicity of gold investments. ETFs trade on the cash market of the National Stock Exchange, like any other company stock, and can be bought and sold continuously at market prices. ETFs are one of the easy instruments to buy gold in India

Gold ETFs
are passive investment instruments that are based on gold prices and invest in
gold bullion. Because of its direct gold pricing, there is a complete
transparency on the holdings of an ETF. Further due to its unique structure and
creation mechanism, the ETFs have much lower expenses as compared to physical
gold investments. Read more at :

https://www.nseindia.com/products/content/equities/etfs/gold.htm

List of available GOLD ETF’s In India

Source: NSE

Looking for easy to use apps to buy gold ETFs? Click here to view the top ranked investment apps in India

3. Gold Funds

Investing in
gold funds is to invest in stocks of companies operating in gold and
gold-related activities. Funnily, gold mutual funds also include silver,
platinum and other metals in their investment basket. Gold mutual funds eliminate the risks on returns
substantially by distributing investments along with a wide range of investment
domains. Investors need to weigh their risk appetite and goals before choosing
such a mutual fund .read more at :

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https://www.bankbazaar.com/mutual-fund/gold-mutual-funds.html

List of Gold Funds in India

Growth Gold
Mutual Funds – The growth option of gold funds will help investors achieve
capital gains at the end of the investment period.

Dividend
Gold Mutual Funds – The dividend option will offer regular income to the
investor in the form of dividends. The dividends can be given out as payouts or
can be reinvested back to the scheme.

Some of the top gold investing funds in India have been given below:

  • Axis Gold Fund
  • Aditya Birla Sun
    Life Gold Fund
  • Canara Robeco
    Gold Savings Fund
  • HDFC Gold Fund
  • ICICI Pru Regular
    Gold Savings Fund
  • IDBI Gold Fund
  • Invesco India
    Gold Fund
  • Kotak Gold Fund
  • Quantum Gold
    Saving Fund
  • Reliance Gold
    Savings Fund
  • SBI Gold Fund

Courtesy: Bankbazaar.

Comparison of Physical gold, Gold ETF and Sovereign Gold Bond

Source: NSE

Conclusion

We buy gold for a variety of reasons such as for its auspicious sentiment; as an investment (Gold continues to command long term value, a tag for being a safe haven); hedge against inflation; asset allocation, etc. Gold also carries a high perceived value and a high emotional quotient.

Investments of any kind have their own set of pros and cons. For gold investment, the safety and security of physically protecting the gold can be risky and cumbersome. I will leave with thought from great American Philosopher : Ralph Waldo Emerson. At the end it’s all about our Financial Freedom.  Thanks

Source: Google

P.S.  Prateek, founder of Investeek was featured in India Today magazine back in 2013 for the amazing returns he made by trading in gold. You can check out the article here                           

—Anup Lamb—



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Prateek Goel

Prateek Goel

Co-founder of Investeek, Prateek has been investing in the stock markets since 2006 and has beaten the NSE/BSE on a consistent basis. At the age of 24, he was also featured in India Today for his expert insight on gold trading.
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