Invest in Gold: Your Ultimate Hedge Against Inflation

Going by the Headline, by now, you all must have known which “Yellow Metal” are we talking about. No marks for guessing it’s “Gold”

Even as the Stock Market rallies, in comparison to all the other asset classes into the investment arena, Gold continues to be most favourite investment option and a hedge against inflation for most Indian Households, especially during festivals like Akshay Tritiya, Dhanteras, Rakshabandhan and during Wedding seasons.

Today, let’s dive deep into our most loved investment asset class Gold and check what are various investment routes available to invest in this “Yellow, Yellow, lovely fellow” for fellow Indians.

Physical Gold

Gold can be purchased physically in the form of Gold-Coins, Gold-Bars and Jewellary. It can also be gifted on various auspicious occasions. However, it must be noted that physical Gold comes with its own costs and risks, such as a few mentioned below:

Cost – In case of buying physical gold, the minimum quantity to be purchased is 1 gram and it needs to be stored with utmost care in “Ghar ki Tijori” or Bank Lockers which carry a cost for themselves. Physical gold attracts 3% GST + the making charges etc in case of gold jewellery.

Purity issues – while buying physical gold, care is to be taken in terms of checking the purity of gold as the case may be 22 carat or 24 carat gold.

Risk – Gold when purchased in the form of coins, bars and jewellery has the risk of getting stolen.

Digital Gold

As compared to the risks involved in possession of gold coins, bars and jewellery, there are safer investment options available to invest in gold via the Digital Route.

One can invest in gold digitally via online channels.
 
Unlike physical gold, through the digital routes, investment is gold is possible with an amount as low as ₹ 1 to a maximum of ₹ 2 lakhs per day. 

Both physical and digital gold acquisition modes are taxed at the same slab rate of 3% 

Digital Gold Holdings can be redeemed for purest certified physical gold units in the form of coins, bars and jewellery, in addition to this, digital gold can be sold directly via designated exchanges and money can be exchanged via instant bank transfers.  

Digital Gold also comes with set of its own risks such as Gains from Digital gold could get exhausted by Storage fee and GST.

Alternative Routes of Digital Gold Investments

Gold ETFs and Sovereign Gold Bonds (SGBs) are the new-age options of investing in Gold digitally. Gold ETFs and SGBs are traded via designated exchanges, have no risk of storage and give better returns as compared to buying digital and physical gold.

Gold ETFs can be considered for Short-term investments and SGBs issued by RBI in various tranches and quoted on exchanges can be considered for long-term investments.

Both Gold ETFs and SGBs are quoted on exchanges and tradeable as well, both can be held in Electronic form, just like shares in the demat accounts.

Why people prefer SGBs for long-term investment in gold?

1. Safety and no risk of handling physical gold.
2. Earn an assured 2.50% interest rate on the issued price per annum.
3. No applicable tax deducted at source on SGBs.
4. Price is linked to the gold price of 999 purity.
5. Can be used as collateral for applying for a loan.
6. The bond’s tenure is for eight years but has the flexibility of redemption after five years with a sovereign guarantee on the redeemed amount and interest.

SGBs can be Risky at Times

There is a risk of loss if the market price of gold falls below its cost price. This is not a specific risk with the SGB form of gold investment but is also applicable to the general form of investment.

The RBI assures that the investor will never lose in terms of the quantity of gold that was allotted to them.

Every individual purchase is restricted to a maximum of 4 kgs per financial year and in case of a trust, it is restricted to 20 kgs.

Where to Find the Details of SGBs and Gold ETFs?

Details regarding SGBs can be found on RBI’s Website and Sovereign Gold Bonds (SGB) & Schemes 2018-2019 - NSE India and Gold ETFs data and quotes can be tracked on NSE Website.

Industry Perspectives:

The COVID Pandemic disrupted the brick and mortar model of Indian Gold Retailers, the pandemic became catalyst for online channels to boost sales. However, online gold market in India is still in its nascent stage, accounting for just around 1-2% of overall gold sales by value.
- World Gold Council Report   

Online retail adoption surged during COVID across categories. Though relatively nascent around 1-2% online gold market in India is seeing a significant push from both digital players who see this as an opportunity and large jewellers who view this as a vital addition to their brick and mortar strategy.
- Somsundaram PR, Regional CEO – India @ World Gold Council    

Conclusion

While physical gold remains Indian’s household’s most loveliest and priciest possessions, there is no harm in adapting to change in how we acquire, preserve and create wealth with gold as an asset-class with new age offerings like Gold ETFs and SGBs.

Also, if you are more inclined towards equity as an asset class, you have the option to invest in companies that are into the industry where gold is the main commodity of use such as Kalyan Jewellers, Deccan Goldmines, etc.

So, head on and discover which form of gold investing suits you more, stay aware and awake, because wo kehte hain a “Sona hai to Jaag Jaao” or let’s modify this a little bit – “Sone par Sone jaise returns Chahiye to Jaag Jaao”

*Source: NSE Website & RBI Website
*Disclosure: For Educational Purposes only, not an investment advice.