Modules for Investors
Alternate investment options in India outside of pureplay financial instruments
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India's favorite alt investment: Gold
When the markets dip, or the economic condition plummets, or when an emergency strikes, there is one investment option that Indians tend to make a beeline for - and that is gold. The yellow metal is India’s favorite and most trusted safe-haven asset. Generations of investors in the country have relied on gold to finance all the major milestones in life, like the purchase of a new house or the wedding of their children.
Generations later, gold investments are still just as popular. And it is likely that you too may have been contemplating investing in gold. But if you’re not sure how to go about adding the yellow metal to your investment portfolio, worry not, because there are several alternatives that you can choose from.
What is gold investment?
Although there are several metals in existence today, only a few of them qualify as precious. Top among this list is gold. Also known as the yellow metal, gold has acquired a great deal of value in every country today. And over time, as with all other assets, the price of gold also fluctuates.
Gold investments is simply a strategy that involves investing in the yellow metal. Interested investors take advantage of the movements in the price of gold to earn returns over the long term. This is what gold investment is all about. Additionally, there are different ways to invest in the yellow metal too, as you’ll discover in the following section.
What are the different ways to invest in gold in India?
There are many easy ways to work a gold investment into your portfolio if you are planning to invest in the yellow metal in the Indian markets. Let’s take a closer look at the top gold investment options in India, including gold investment bonds and gold stocks.
You are likely already aware about how to invest in physical gold. After all, this is how most people have invested in the yellow metal in the generations before us. Physical gold is gold in tangible form, which can be purchased in the form of gold bars, gold coins or even gold jewelry. In the bulk form, physical gold is known as bullion.
Physical gold investments are easy to get into, because you just need to purchase the yellow metal in any of the forms mentioned above, just like you would buy any other product or goods.
Investing in physical gold has its own advantages and disadvantages, as listed below.
Pros of physical gold investment
- Easy to invest
- A hedge against inflation
- Highly liquid investment
Cons of physical gold investment
- Difficult to store in large amounts
- No passive income generation
Digital gold is a kind of virtual investment in the yellow metal. It gives investors an opportunity to invest in gold without the cumbersome burden of storing it in the physical form. This eliminates the issue of security that is often associated with physical gold. You can buy digital gold online, and the minimum transaction value is just ₹1.
The digital gold that you purchase is stored in insured vaults on your behalf. The price of digital gold typically tracks the price of 24 carat gold, so you can rest assured that you are investing in the purest form of the yellow metal.
Like physical gold, digital gold also has its own upsides and downsides.
Pros of digital gold investment
- Supports small investments as low as ₹1
- Tracks the price of genuine, 24 carat gold
- Easier to store than physical gold
Cons of digital gold investment
- Maximum daily investment limit is ₹ 2,00,000
- No official regulating body to govern transactions
Gold Exchange Traded Funds (ETFs)
A gold ETF is a fund that is traded on the exchange, just like stocks and other securities are. They are assets that can be purchased or redeemed at any time. And they track the domestic price of physical gold. Typically, 1 gold ETF is equivalent to 1 gram of gold. And the asset backing each gold ETF unit is gold of very high purity. You can invest in gold ETFs through your demat account.
Check out the pros and cons of gold ETFs below.
Pros of gold ETFs
- Highly liquid investment options as they are exchange traded
- Small denominations make investments easier
- Offer an easy way to participate in the gold market
Cons of gold ETFs
- Involve brokerage and asset management fees
- No SIP option available
Gold mutual funds
Gold mutual funds are simply MFs that invest either directly or indirectly in gold or gold-based assets. The portfolio of gold mutual funds can include gold stocks, physical gold and bullion. You can invest in gold mutual funds in the same way you invest in other MFs, so you don’t really need a demat account to get started with your gold investment in this case.
Before you choose gold mutual funds as your preferred way to invest in the yellow metal, get to know its ups and downs below.
Pros of gold mutual funds
- Demat account not needs for investing
- Gold price fluctuations do not directly affect the fund
- SIP option available for investors
Cons of gold mutual funds
- Fund management charges may reduce net returns
- Bear a higher risk than other gold investment avenues
Sovereign Gold Bonds (SGBs)
Sovereign Gold Bonds (SGBs) give you a safe and secure way to invest in the yellow metal. These gold investment bonds are issued by the Reserve Bank of India on behalf of the Indian Government. Each of these gold investment bonds is denominated in grams of gold, with the minimum unit being 1 gram of gold. The maximum amount of investment permitted per individual is 4kg.
These bonds are traded on the exchange after a fortnight from the issue date. So, you can purchase these bonds upon issue or via the secondary market.
Check out the pros and cons of sovereign gold investment bonds below.
Pros of SGBs
- Interest at the rate of 2.5% per annum
- Ideal long-term investment option due to 8-year maturity period
- Tax exemption on capital gains at redemption
Cons of SGBs
- Issued in batches, so anytime investment is not possible
- Possible capital loss if gold price falls
As you can see, there are several ways to include this alternative investment option in your portfolio. Gold can act as a hedge against inflation in the long run, and can be particularly useful when the markets are bearish. However, if you want to invest in the markets and in gold, you can get the best of both worlds by investing in gold stocks, i.e. the stocks of companies involved in the business of mining gold or manufacturing gold products.
Remember to weigh your options and choose the right investment avenue if you wish to make gold a part of your asset portfolio. And if you are looking for more alt assets to invest in, head to the next chapter to learn all about India's other favorite alt investment - real estate.
A quick recap
- There are many easy ways to work a gold investment into your portfolio if you are planning to invest in the yellow metal in the Indian markets.
- You can invest in physical gold, digital gold or even sovereign gold bonds.
- Alternatively, you can invest in gold ETFs or gold funds.
- Each gold investment avenue comes with its own advantages and disadvantages.
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