Rina Nathani
Akshaya Tritiya is among the many auspicious muhurats to buy gold. In Sanskrit, Akshaya means “never decreasing” or the one that shall bring prosperity or good fortune. And since it is on the third day of Vaishakh month in the Hindu calendar, it is referred to as Akshaya Tritiya –the day in the year when the sun and the moon are at the acme of their brightness.
Here are the three smart choices I make to invest in gold:
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Gold Exchange Traded Fund (Gold ETF)
To gain exposure to gold without having the hassle of physically holding it, a gold ETF is a worthwhile option. It tracks the domestic price of gold, and each unit represents ownership of gold.
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Each unit in a gold ETF could be equal to 1 gram of gold (some mutual fund houses also offer 1 unit at 0.5 gram of gold). You could purchase a minimum of 1 unit of a gold ETF in multiples thereof. All you need is a demat and trading account, and the purchase order can be placed through your broker just as you buy shares.
The gold ETF units purchased will be backed by 0.995 finesse of physical gold by the fund house. The physical gold is held in vaults by an appointed custodian. The stock is insured and valued daily, complying with guidelines set by the Securities and Exchange Board of India (SEBI).
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The investment objective of a gold ETF is to generate returns broadly in line with the domestic price of gold. If gold appreciates, you benefit.
Gold ETF units are sold the same way you buy them; through your broker. But what if you wish to convert your gold ETF units into physical gold? That is possible only for a certain quantity, as prescribed by the scheme’s offer document (usually 1 kg.) The fund house will carry out KYC (Know Your Customer) checks to validate that the delivery reaches the same person as the actual investor.
Gold Savings Fund
If you are considering making systematic investments into gold for an envisioned goal and not just making a one-time investment on the auspicious muhurats, then a Gold Saving Fund is your solution. A Gold Savings Fund is an open-ended Fund of Funds scheme that invests its corpus into an underlying Gold ETF, which, in turn, invests in physical gold.
Hence, the investment objective of a Gold Savings Fund is to generate returns that closely correspond with the returns generated by the underlying Gold ETF.
To buy units in a Gold Savings Fund, you need to approach the fund house. The buy order cannot be placed on the stock exchange through your broker, as with gold ETFs. In other words, you do not require a Demat Account and Trading Account to buy units in a Gold Savings Fund.
You may invest systematically, as little as Rs 500 per month, through a systematic investment plan (SIP). A SIP is a good and effective way to plan for your financial goals.
Similarly, when you sell your gold MF, you get the money on a T+2 working days basis.
Sovereign Gold Bonds
Sovereign Gold Bonds (SGBs) are issued by the Reserve Bank of India (RBI). They are issued in denominations of 1 gram of gold and multiples thereof. The tenure is 8 years but there is an exit option at the end of the fifth year. In other words, SGBs come with a 5-year lock-in. SGBs are tradable on stock exchanges.
Resident individuals can buy SGBs. A minor can also invest through a legal guardian. If there is a change in residential status from resident to non-resident (NRI) after you have invested, you are allowed to hold SGBs until early redemption (at the end of the fifth year) or till maturity (for eight years).
You can buy SGBs through banks, post offices, Stock Holding Corporation of India Ltd (SHCIL), and any recognised stock exchanges, either directly or via an agent.
The minimum nvestment is 1 gram of gold, while the maximum is 4 kgs per fiscal year (i.e. April – March). In the case of joint holdings, the limits shall apply to the first applicant.
The good part here is that SGBs earn you interest at 2.5% p.a. (fixed rate) on the investment amount. The interest is credited on a half-yearly basis to your bank account, and the last interest will be payable on maturity along with the principal. No TDS (tax deducted at source) is applicable on interest distributed. Apart from interest income, you stand a chance to benefit from capital appreciation since SGBs are linked to the price of gold. At Maturity (8 years), SGBs are redeemed. The redemption price shall be based on a simple average of the closing price of gold of 999 purity on the previous three business days from the date of repayment, published by the India Bullion and Jewellers Association (IBJA).
What should investors do?
Whichever contemporary option you choose to invest in gold, there are clear advantages to holding gold in a smart form and not having to worry about its storage, holding cost, risk of loss, theft, etc.. A prospective buyer of your physical gold may also question the purity of your physical gold.
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But keep in mind these three things when you invest in gold:
Keep a fairly long investment time horizon (of around 7-8 years)
Be ready to assume moderately high risk
Be mindful of the tax implications when you sell your gold.
In times of macroeconomic uncertainty, geopolitical tensions, rising inflation, pandemics, and the fallout of all these factors on economic growth, gold is likely to do well and prove its trait of being a safe haven and an effective portfolio diversifier.
Rina Nathani is the Chief Business Officer at Quantum AMC
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