Gold is an important part of any investment portfolio. With the advent of technology and development in financial markets, one can purchase gold not only in physical form but also in electronic form.
The biggest disadvantage of buying gold in physical form is the need to keep it in safe custody as it carries high risk of theft. Therefore, electronic gold becomes more attractive in comparison.
Buying Physical Gold
Jewellers have been a traditional source of buying gold. Jewellers sell gold as coins, utensils, statues and bars. Jewellers sell gold at the prevailing market rate, but they levy heavy making charges.
Gold in the form of jewellery should be purchased only to be used as an ornament. It cannot be a wise investment because it loses its value while being converted to either cash or gold in the form of making charges.
Gold Coins and Gold bars are available now in mostly all the banks. In banks you can trust the weight and the purity of gold. Also, banks issue a certificate of purity with the gold they sell.
The price of gold in banks is usually higher than the market rate, at times even 20% higher.
3. Monthly Investment Schemes
Some jewellers manage monthly contribution schemes. There are two types of schemes run by the jewellers. In one type, the amount of money contributed gets accumulated and the investor redeems it in gold as per the rate prevailing. In the second type, the investor accumulates in grams. So here they can take advantage of the price fluctuations throughout the year and redeem when the prices are high.
It is a disciplined way of investment and one can plan in advance.
Buying Electronic Gold
- Gold ETFs
Gold Exchange Traded Funds are mutual fund schemes that invest only in gold. Its units are held by the investors in electronic form. One unit of Gold ETF is equivalent to about one gram of gold and hence its price is also almost equal to one gram of gold. The units of Gold ETF are traded on stock exchange, and hence can be bought and sold.
ETFs are like securities which can change hands like other securities. The disadvantage here is the cost as broker charges both ways to buy or sell ETF units.
E Gold was launched recently by the National Spot Exchange. (NSEL). Here the investor is directly the owner of Gold whereas in Gold ETF the Asset management Company holds the gold on behalf of the investor.
While Gold ETFs are exempted under wealth tax, E Gold is taxable. Gold ETFs involve fund management charges and E Gold involves brokerage charges.
- Gold Funds
Gold funds have been launched by mutual funds. It is fund of fund scheme and hence slightly expensive. It requires no demat account.
- Equity Based Gold Funds
Equity based Gold Funds are mutual fund schemes that invest in stocks issued by companies engaged primarily in mining, extraction, processing and marketing of gold. In India, MMTC is one such associated with gold. These funds involve Equity risk, Gold price risk and Currency risk.
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