Gold investments are viewed as safe investment options during times of economic
turmoil as the gold market tends to move in the opposite direction of equities.
Thus, investing in gold is regarded as a means of hedging one’s portfolio against
market volatility, which is particularly important in today’s economic climate.
The price of gold has been increasing throughout 2020, moving alongside
growing investor concerns over
everything from the U.S China trade War, to the threat of long-term economic
recession caused by COVID-19.
Gold can be bought and invested in through a variety of ways, including
purchases of physical gold and online investments. Here are the different ways in which you can buy gold.
Types of Gold Investment
Physical Gold
1. Jewellery
Jewellery is similar to
investing in gold coins or bars, however, it is better to view them as expenses
rather than an investment. An important reason for the same is due to the
additional cost of having the gold turned into jewellery. If one were to sell
their jewellery, they would not receive that additional cost back, referred to
as ‘making charges’. Furthermore, the price of your jewellery can be affected
by the performance of the gold itself.
These additional charges can
range from 5% to 23% based on the jewellery being fashioned. An advantage of
the same however is that the jewellery can be used as a possession by the owner
though that has little relevance if the purpose of investing in the gold is as
a long-term investment strategy.
2. Coins and Bars
Gold coins and bars do not have much use, all things considered. They
are a valid and safe
investment option and require
additional making charges, though it is far less than it would be for
jewellery.
However, both of the previous two options also come with the risk of
physical damage or theft, and thus storing wealth in them can get tricky.
3. Gold Savings Schemes
These are schemes run by jewellers. One must deposit a sum every month and once this matures one can buy gold of the same amount from the jeweller. It is even possible to get an additional amount at the end of your total amount. However, while that may be an advantage, there are several risks such as the level of trust that is required to invest with a particular jeweller. Making charges are also applicable ranging from 5% to 23%even. These additional expenses may negate the bonus amount they choose to give you which means that the overall returns actually diminish over the period.
This method of gold investment is a
cost-efficient way to partake in the form of online investment. It can be bought on various
online platforms that are often associated with gold traders and manufacturers.
It is found for as cheap as Rs. 1 and the gold can be used to make transactions
at market price. One can choose to get the value of the gold in which you
invested or have it delivered physically. The digital investment, either way,
is backed by physical gold. Digital gold can even be used for further
investments.
2. Gold Bonds
Sovereign gold bonds were launched by the
Government in 2015 and were created as
another option instead of owning gold in the form of bars, coins or jewellery.
This is an efficient and safe
investment option as they have a lock-in period of five years with a
term of eight years overall, providing fixed interest returns. While the bonds
can only be redeemed for cash, they include no extra management fees, making
them as safe and affordable an
investment as one can ask for.
3. Gold ETFs
A gold ETF is an exchange
traded fund that invests in gold and is
traded on the stock market. While an ETF does not let you own any gold, it
allows one exposure to the commodity’s performance. Investing in a gold ETF is
fairly cost-effective, and though one can expect charges such as management
fees and brokerage charges these don’t usually amount to much.
4. Gold Fund of Funds (FOFs)
In the same vein, ‘fund of funds’ is a set of mutual funds that invest
in other mutual funds. They are high-risk investments as they are more
expensive. They carry the charges for Gold ETFs since that is what is being
invested in and come with their own additional costs as well.
Is it worth investing in Gold?
Online investment in gold is a good way for
a beginner to invest as they each offer a variety of uses. These can be
considered relatively safe
investment options since they
offer a fixed interest rate or are linked to the live commodity price and offer the option of owning physical gold or
receiving monetary value. However, it is important to assess the method that
you choose, keeping in mind the
additional expenses that may need to be considered.
Gold is a good investment opportunity to buy-in due to the stability of the product in an ever-changing market; It flourishes precisely when the wider market is struggling. However, before investing, you must very clearly lay out your expectations from the investment, namely, the amount of risk you are looking for in the investment. Whether you want to receive physical gold at the end of your investment (if investing in non-physical options) or not is another question to consider.
The reason for investing differs from person to person, but if you’re looking for accurate and customized guidance on how to secure and grow your finances during the pandemic, either through investing in a hedging mechanism such as gold, or other securities, TATA Capital’s Wealth Management solutions are perfect for you. Its team of expert Wealth Managers will help you find the investment strategy best suited to your long-term financial needs, and help you choose the right investments across a wide variety of investment options.
16 October 2020
6 mins read
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