Before you get into how to invest in gold, you should know the pros and cons of investing in this asset which has clearly captivated the attention of investors over several decades now. Gold bars from bullionboxsubscriptions is undoubtedly useful as a class of investments and you should carefully understand the various modes and means available for investing in the same. There are several vital things that you should know about investing in gold.
How does gold investment work? Here are vital things worth knowing
While you work out the best way to invest in gold, you should consider the below-mentioned factors or aspects before investing.
- Liquidity Levels- Liquidity refers to the ability of any particular asset to be converted instantly into cash whenever you require the same. This is a vital investment parameter and if you desire higher liquidity for your gold investment, you should consider ETFs since they can be sold easily as per your convenience, during the market hours. You can sell them anywhere at the uniform price point. Physical gold comes second in terms of overall liquidity levels. SGBs or sovereign gold bonds have definite advantages although they do not have ample liquidity owing to the 8-year lock-in period that is prescribed for them. You may consider an exit after the passage of 5 years but the capital gains will not be free from taxes.
- Safety Levels- Investment safety is another major area of concern, particularly when you are dealing with a valuable asset class such as gold. A smaller physical amount will naturally store a higher value at least monetarily in this scenario. From this perspective, SGBs may be the best alternative and answer to your query- Is gold a good investment. Gold ETFs can also be considered since unlike physical gold assets, they are digitally stored in Demat accounts of investors, thereby lowering fraud or theft risks considerably.
- Returns- Each investor wishes to deploy investments in assets which churn out attractive returns. SGBs have the highest possible returns as per experts with an additional 2.5% expected in interest per annum along with returns on the price of gold. The latter is known as capital appreciation. ETFs also offer good returns through capital appreciation although some nominal deductions are made by way of expenditure charged by the AMC offering the ETF. Physical gold should offer returns based on price appreciation although it will be adjusted for impurity and also the making charges. The net returns here are the lowest as a result. Furthermore, if you want to explore more, Gold Mutual Funds are also one of the best options. Top performing funds can provide handsome returns on your investment.
- Taxation Aspects- Return taxability will be affecting investment decisions since the net return will be lower if the taxation aspect is higher. SGBs will have interest on bonds being taxable at regular rates. If there are maturity-based capital gains, then income tax will be exempted. SGBs, if sold post 5 years from investment, will have indexation benefits. For physical gold and gold ETFs, capital gains will always be taxable. Indexation benefits will be available on the entire tax deduction. This lowers the net returns of physical gold sizably.
- Costs of Storage- Costs of storage will have to be taken into account since gold is a valuable asset. Gold ETFs and SGBs have risk-free and convenient storage options at lower costs in comparison to physical gold since they are electronically stored in the Demat account. Storage and theft risk-related costs naturally come down in these cases.
- Purity- Gold purity is another parameter that should be understood carefully. While buying physical gold, you will naturally want to buy from your trusted brand/dealer in order to lower fraud risks and risks pertaining to landing up with low-quality or purity of the gold which has been bought. If you are investing in electronic gold, you need not worry about any purity issues since these will be guaranteed by the Indian Government (for SGBs) and AMCs (for gold ETFs).
Investment amounts and other factors
Different people have varying sizes of portfolios and hence the amount to be allotted for individual asset investment will naturally differ. For physical gold, there is no minimum investment need or maximum restriction. However, you may have to explain the source of high gold volumes if the authorities demand an explanation for the same. For SGBs and gold ETFs, the minimum investment should be 1 gram of gold although you can hold a maximum of 4 kg gold for the former. For ETFs, there is no upper limit.
You can check out convenient investment schemes like Digital Gold which may give you handsome future returns and help you enhance the quality of your portfolio. Along with investment restrictions and high liquidity, SGBs are the best gold investment instrument along with ETFs which have the same benefits without any limits on the value of the investment. Physical gold should be ideally bought only in the form of jewellery if they are needed for auspicious occasions or for personal fulfilment or to pass on the same as inherited assets for future generations.
Gold is expected to churn out attractive future returns owing to various macroeconomic factors and you should allocate a specific percentage of the portfolio towards gold-based instruments. It should also be noted that the share of gold ETFs in the gold investment pie has gone up to 35% from 20% in the year 2010. This clearly indicates their popularity along with SGBs.