Best ways to invest in Gold
Experts say you can always buy gold if you like wearing jewellery or want to buy the yellow metal for investment purposes.
There is no such thing as a bad time to buy gold, they say. But they would like you to consider a host of options including branded gold bars and coins, gold ETFs before you reach out for your wallet.
The idea is to maximise your returns from these purchases, as some of them offer more returns and the process of selling them is less cumbersome.
What is the best way to Invest in Gold?
According to them, jewellery is the least preferred option, followed by unbranded coins and bars.
The most preferred modes of purchases, according to them, are Gold Exchange Traded Funds, branded bars, coins, jewellery — exactly in their order of preference.
“It (the form) really depends on the end-use of gold. If parents are investing in gold to make some jewellery for their children, I would advise them to invest in coins/bars,” says Jhaveri.
“If it’s for retirement or just another investment, I would recommend ETFs, as they act like quasi cash.”
“While many banks are promoting gold coins and bars in a big way, you need to know that they do not buy back gold.
So, when you wish to sell them, you have to deal with goldsmiths, who may deduct a huge margin amount.
Besides, you will also have to incur storage expenses,” says Vicky Mehta, senior research analyst, Morningstar India.
The way out seems to be buying coins, jewellery and so on from other branded outlets.
“Banks to sell gold coins and bars, but many times we have observed that their prices are higher than ours,” says a senior official of a branded jewellery store.
Adds Sandeep Kulhalli, senior vice-president, retail and marketing, Tanishq: “While banks do not buy back gold, we accept gold coins after deduction of making charges of 4-6% if the payment is in cash.
The charges are usually waived off if gold is exchanged for jewellery instead.”
However, no prizes for guessing the preferred mode of investment for the number wizards. Gold ETFs.
“Gold exchange-traded funds (ETF) are a smart way of investing in gold.
Although the investor will need a Demat account, the advantages include zero storage costs, assurance of quality and facility to purchase units online.
While choosing a gold ETF or any ETF, ask your financial advisor to look for the one with a lower expense ratio and minimal tracking error, as it may be difficult for a lay investor to grasp these technical terms,” says Mehta.
“Another advantage of gold ETFs over physical gold is on the taxation front. Investments in gold ETFs are considered for long-term capital gains after a period of 12 months from the date of purchase. In the case of physical gold, the commensurate period is three years.”
Gold ETFs have posted an average one-year return of 19.5% (as on October 27, 2010). They logged a three-year compounded annual returns of 23%.
Rishi Nathany is the only exception to this rule.
His first recommendation is E-gold, an initiative by National Spot Exchange, which is yet to become popular with investors.
“The clearing and settlement take place on a T+2 basis. The biggest advantage is the transparent pricing and lower costs,” says Nathany.
His second preference, of course, is gold ETFs, which attract a fund management charge of 1%.
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