Emotions are an integral part of every Indian’s life. Their emotions and culture are a strong base for various aspects of life. Similar is the case with investments for Indians. They may invest in varied products based on their suitability, but gold is one of the most desired instruments for them. The religious, cultural, hereditary and status aspects are highly tangled with gold investments in India.
India has the third largest gold reserve in the world as of the 2nd quarter of FY 2024-25. Moreover, the rising rally of physical gold prices indicates a positive prospect for investors. However, investing in physical gold can be difficult for many due to high prices.
Therefore, investors should seek alternative options, such as financial instruments to invest indirectly in gold. Let’s explore 5 prominent instruments to invest in gold.
Check this out! A Simple Guide to the Commodity Market in India
Why are gold investments so preferred?
Traditionally, gold is regarded as one of the most prominent investments because of its rare availability. It helps investors in the following ways :
- Inflation shield: Due to the effect of inflation, the value of currency diminishes. However, the price of commodities increases. Therefore, the gold value is retained or increased.
- Value storage: As gold retains its intrinsic value, investors prefer keeping gold as a reserve and storing value in it. In future, this value will be increased, and liquidating investment can be easy.
- Diversification: Having diverse assets in the portfolio can help investors spread risk and returns. Gold can be one of the best options for facilitating this diversification.
- Considered futuristic: Due to scarcity, the physical gold prices are expected to rise, and it can benefit investors to safely retain their money value.
- Moderate liquidity: Purchasing and selling gold investments can be easy due to the ample availability of investors. Moreover, the facility for liquidating gold, such as jewellers, mutual funds, government sites, etc., has evolved.
- Cultural inclination: As discussed, Indian culture is highly intricate to the values of gold and therefore, investors have a significant preference for the same.
An interesting read: Investing in Gold: From Tradition to Modern Value
5 ways to invest in gold
Diversifying the investments to directly or indirectly invest in gold can help investors unlock its potential. Here is the list of 5 prominent ways to invest in gold:
It is one of the most prevalent investment avenues for traditional investors. The gold bullion in the form of coins, bars, and ingots from the jewellers. One can buy them in different shapes and sizes. The quality of gold investment is measured with the help of the unit-carat(K).
As per the standards, the measure of 24 carats(K) is considered pure gold. When gold is 22K, there is some other metal in the mixture along with gold. Apart from buying gold bullion, investors can also purchase jewellery, sheets and other artefacts.
It is a passive instrument that offers a combined benefit of stock investment and gold. These track the prices of domestic physical gold with 99.5% purity. Moreover, they are listed on the stock markets and can be traded as stocks. They are treated as non-equity funds. Investors usually confuse gold ETFs and gold mutual funds. Gold ETFs invest in physical gold, and gold mutual funds invest in these ETFs.
- Gold mutual funds
In recent times, mutual funds have evolved to be one of the most feasible investments. Due to facilities like Systematic Investment Plans (SIPs), mutual fund investments have become feasible for retail investors. This invests in a portfolio of diverse assets with investors pooled money.
Gold ETFs are one such diversification that mutual fund schemes use. The value of such funds is derived from the value of these ETFs traded on the exchange. Rather than paying high gold prices, small and regular SIPs can be a feasible option for all investor classes.
These are government securities, which are denominated based on physical gold measures. In this, investors can purchase a financial instrument rather than holding a physical gold investment. Being a bond, investors can also earn interest income along with capital appreciation.
When the physical gold prices increase, the value of sovereign gold bonds also increases. The bonds can be sold before the maturity period. An individual can buy 1 unit (1 gram) up to 4000 units (4 kg) of SGBs. However, the government is in talks to discontinue SGBs due to complex mechanisms and costly investment.
- Digital gold
It is one of the most unique and cost-saving methods to buy gold. Investors can purchase it online, and the purchased gold is saved in an insured vault. It is also known as paper gold. Most payment platforms offer this facility. One can invest as low as ₹1. However, the issuer’s certain conditions should be fulfilled.
Also, read GST on Gold and How to Calculate It
Summary
Gold is one of the most desired commodities among the investors. Investors can use different ways to invest in gold and gauge the benefit of its rising prices. Moreover, it will also provide the desired diversification for their portfolio.
FAQs
- Why do people prefer gold investments?
Gold is a rare metal, and due to this lack of availability, its prices increase over time. Moreover, it provides significant diversification and a storage value for the value of money, which depreciates due to inflations. Apart from this, Indian investors have a cultural inclination towards gold investments.
- Is SGB better than fixed deposits?
SGBs are government fixed-income securities that deal with physical gold prices. The better option between SGB and FDs depends on the investor’s risk tolerance. If one desires higher risk and returns, they can invest in SGB, which would fluctuate based on gold prices. However, FDs can provide stable returns with less risk.
- Is digital gold legal in India?
Yes, digital gold is legal in India. However, it is not yet famous among investors in India. It allows investors to buy gold online, and is saved in their digital vault. Therefore, investors purchase gold units without buying physical gold. This helps in protecting them from the risk of loss or theft of tangible assets.
- What is pure gold?
As per international standards, pure gold doesn’t have any other metal constituent. It is 100% gold with 24K measure. Other gold carats, lower than this, have a mixture of other metals. SGBs and gold ETFs invest in such pure gold. Purity of gold raises its value proportionately.
- Can I buy gold with SIP?
Yes, investors can invest indirectly in the gold through mutual funds, and it will allow them to make SIP. Therefore, rather than purchasing costly gold, one can invest with small regular SIPs. Moreover, due to SIP, one may also average out the cost of such investment in the long term.
