Gold Investing Made Painless
Instruments like ETFs, E-Gold and Sovereign Gold Bonds enable you to invest in gold in demat form
The investment portfolio, of majority of Indian households, comprise of some gold. It is considered auspicious to purchase gold during festivals like Dhanteras. However, holding gold in physical form is not without its drawbacks. Some of them include the risk of theft, purity of the metal, making charges if you’re buying jewellery, and lack of liquidity.
However, if you still think that gold is a good investment bet, you can still put your money in the metal -- without actually holding it in physical form. Your options include gold exchange-traded funds or ETFs, e-gold, and sovereign gold bonds. Let’s look at each of them:
Gold ETFs: Gold ETFs are like open-ended mutual funds that invest in gold. When you buy units in a gold ETF, the funds are invested in gold bullion. These funds are open-ended and traded on the stock exchange. All you need to do to invest is go to your online trading account and buy them. Similarly, you can also sell them. Therefore, you enjoy the benefits of high liquidity, accurate pricing of the metal, plus safety. You can also buy them in quantities of your choosing -- even as little as a gram. There is, of course, a small charge involved in ETFs, called an expense ratio. It’s usually around 1% -- not a very high price to pay for safety, liquidity and transparency. Apart from this, you will also have to pay brokerage charges.
E-Gold (Electronic Gold): This instrument is similar to ETFs and was introduced by National Spot Exchange in 2010. This enables you to buy gold in dematerialised form, just like shares and mutual funds. What’s more, you can buy the gold in small quantities. If you so choose, you can convert the dematerialised units into physical gold. Unlike ETFs, E-Gold does not involve a recurring management fee, but only a one-time charge.
Sovereign Gold Bonds (SGBs): Another option for gold investing is SGBs issued by the Reserve Bank of India (RBI). These are available for a tenor of eight years in denominations of 1 gram, with a maximum limit of four kg for individuals. You can opt for early redemption after five years. On redemption, you will be paid in cash based on the average price of gold of 999 purity of the previous three business days.
The bonds are available at branches of banks and selected post offices. The best part about these bonds is that they are tradable on stock exchanges, thus ensuring a high level of liquidity.
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