Cheapest Way to Buy Gold & Hold Without any Extra Charges

Way to Buy Cheap Gold Legally : Gold ETF & SGB

Gold has a deep-rooted significance in Indian history, alluring people from different parts of the world with its beauty and charm. Its golden glow was visible across seas and borders, evoking emotions from millions of hearts. Over the years India’s infatuation with gold has grown stronger and stronger, with Indians accounting for most of the gold consumed globally. Gold, in Indian history, is more than an investment, it is a culturally significant metal that has found a place in Indian hearts and homes alike.

A vast majority of the Indian population indeed survives on meager resources, but despite this, they find ways to buy gold and make it an integral part of their lives, irrespective of gold rates in their city/town. Gold has takers across the length and breadth of our nation, right from Delhi to Chennai and Ahmedabad to Kolkata. There are a few reasons which have propelled gold to a pedestal in India, a spot which it is likely to hold on to for a long time.

Gold has been a substance of value for millennia and remains valuable today. Many investors seek to hold gold as a store of value and as a hedge against inflation, but it can be difficult and cumbersome to hold large quantities of physical gold. Security efforts are often put in place to prevent its theft which can also be expensive. Fortunately, there are several ways to gain exposure to movements in the price of gold without physically holding it. 

In this article, we will be exploring all the various ways of investing in gold and their advantages and disadvantages over each other.

Gold in the form of jewellery is not only used as wearable but also works as a tool to tide over financial emergencies. So, buying gold has traditionally been a financial support system over the years.

There are ways of owning gold - paper and physical. You can buy it physically in the form of jewellery, coins, and gold bars and for paper gold, you can use gold exchange-traded funds and sovereign gold bonds. Then there are gold mutual funds which further invest in gold ETFs. There are gold MFs also which invest in the shares of international gold mining companies.

For buying physical gold, one may reach out to the neighbourhood jewellers. Few jewellers allow placing an order on their websites too. Further, there are e-commerce websites such as Amazon India, Paytm and Snapdeal where one can buy gold coins online to get the coins delivered at home.

Gold ETF

Gold ETF, or Exchange Traded Fund, is a commodity-based Mutual Fund that invests in assets like gold. These exchange-traded funds perform like individual stocks and are traded similarly on the stock exchange.

Exchange-traded funds represent assets, in this case, physical gold, both in dematerialised and paper form. An investor invests in stocks instead of the actual metal, and once it is traded, they are credited with the unit’s equivalent in cash instead of actual gold.

What is the Purpose of Gold ETF?

Despite being a commodity-based traded fund, gold ETF funds can be used as an industry exchange-traded fund as well. It is an ideal investment strategy to broaden a financial portfolio and to get exposure in a variety of sectors like gold mining, manufacturing, transport industry, etc. These traded funds are relatively simpler to obtain and provides an easier way to invest in the gold industry.

The best gold ETFs can also be used as hedge protection against a fluctuating market, which makes them an alternative to insurance in one’s investment portfolio. For example, investors can use short-term exchange-traded funds to minimise their loss if the price of gold suddenly plummets.

These exchange-traded funds are rated as some of the best defensive assets available in the market. It is considered to have the same class traits as bonds as many investors use them to insure their investments against economic fluctuations, and in extreme cases, currency debasement. The price of gold can rise by a significant margin if major currencies, like dollar, tend to fall weak. Investing in gold ETF can allow an individual to profit from that sudden drop.

Each unit of these traded funds represents 1 gram of 99.5% pure gold, which makes them ideal long-term investments, especially if an individual opts to invest larger sums or performs trade systematically.

Major Advantages

There are several benefits of investing in gold ETF funds rather than purchasing and stocking physical gold.

Easier trading – The process of purchasing and selling gold ETFs is similar to any other equity-based fund. It makes the entire process easier, especially if the individual is trading stocks via a stockbroker or ETF funds manger. They are much easier to liquidate; they can be traded during working hours.

Moreover, gold prices are publicly available in the stock exchange. It makes the entire process transparent and allows an investor to track changes, even on an hourly basis.

No entry or exit loads – Gold ETFs do not attract any entry or exit loads, ensuring zero additional charges when purchasing or selling these funds. Investors only have to pay 0.5% to 1% brokerage on transactions.

Tax benefits – Other than capital gains tax, these traded funds do not attract VAT, Securities Transaction Tax or Value Added Taxes, allowing an individual to save taxes on their investment.

Investing in physical gold can make an individual liable to pay wealth taxes, especially if he or she purchases a lot of gold jewellery or gold bullions. Gold ETF investment do not attract any wealth taxes, which makes it better for tax saving.

Less market risk – Gold prices usually do not fluctuate by a substantial margin, which allows prevention of a major loss even when returns on equities decrease by a substantial margin.

As gold ETFs are available in variable denomination, it is ideal for all types of investors. One can start investing with as low as 1 unit of the traded fund, which represents one gram of gold.

Usage as collateral – Gold ETFs can be presented as collateral against a secured loan borrowed from any financial institution. It presents more convenience than traditional hypothecation as the entire process stays significantly less time-consuming.

Disadvantages

Most of the above-mentioned advantages come at a cost in the case of gold ETFs. A small asset management fee is charged by the fund house, so the return is slightly less than the actual increase in the gold price. Moreover, there are additional costs involved at the time of buying and selling in the form of brokerage or commission. Another drawback with gold ETFs is liquidity; some ETFs are illiquid, which impacts their buying and selling flexibility. Hence, investors should consider this as a factor while investing in gold ETFs and should stick to liquid funds.

Sovereign Gold Bonds

Sovereign gold bonds are RBI mandated certificates issued against grams of gold, allowing individuals to invest in gold without the strain of safekeeping their physical asset. Sovereign gold bonds act as a secure investment tool among individuals, as gold prices are less susceptible to market fluctuations. Owing to the popularity and widespread demand for gold, prices of such assets tend to rise significantly over time, a highly prospective investment avenue.

As these bonds are issued by the RBI under Government of India stocks, a particular window is pre-set for subscription, during which a sovereign gold bond scheme is issued in the name of investors in tranches. Generally, the RBI announces issuance of latest sovereign bonds in a press release every 2-3 months, with a one-week window during which individuals can subscribe to this scheme.

A holding certificate is issued in the name of an investor upon successful purchase of a sovereign gold bond.

Advantages of Investing in Sovereign Gold Bonds

Low risk:

A sovereign gold bond is issued under the Government Security Act of 2006 by the Reserve Bank of India, on behalf of the central government. Such government backing makes sovereign gold bonds one of the safest forms of investments available in India, as chances of defaults on repayment is zero. Any risk associated with such investments can be attributed to market fluctuations, causing volatility in gold prices.

Convenience:

Sovereign gold bonds were launched under the gold monetisation scheme by the central government in November 2015. The primary aim of such treasury bonds was to reduce the hassles involved with gold investments, as bullions and other physical forms of investments required proper and secure storage.

Investors purchasing a gold bond are issued a holding certificate as a declaration of their investment, thereby acting as proof of the same. Individuals can also choose to digitise such holding certificates to utilise them in their Demat accounts, thus enhancing the security of their investment even further.

Capital appreciation

Sovereign gold bond returns are substantial as the price of this precious metal tends to rise in the long term. During times of stock market turmoil, investors tend to shift towards gold, as it has the potential to hold its value even during the underperformance of major functional companies.

Also, as gold is one of the highly demanded precious metals owing to its widespread usage, the market demand tends to be relatively high irrespective of the market variations and global economic scenarios. Hence, unsystematic risks causing erratic movements in the intrinsic value of gold are minimal, allowing investment corpus to grow manifold over time.

Hedge against inflation:

As stated above, gold prices demonstrate extensive capital appreciation. Rates of growth of such assets are considerably higher than the prevailing inflation rates a country, vital as an investment avenue. Hence, individuals can enjoy growth in the real value of their investment portfolio, allowing them to accumulate substantial wealth over time.

Long term investment:

Sovereign gold bond scheme 2020 comes in with a holding period of 8 years. This is ideal for individuals looking for a long-term investment scheme generating extensive capital gains, along with the security of corpus.

Loan facility

Sovereign gold bonds are an acceptable form of collateral to avail loans. Up to 75% of the market value of such bonds can be availed as a loan from any scheduled financial institution, as stipulated by the RBI’s LTV regulations.

Disadvantages

Inversely Related to the Stock Market

Gold prices have an inverse correlation with the stock market, wherein any upturn in stock market returns is generally followed by reduced gold prices. During an economic boom, investors have an optimistic approach towards the stock market, as they expect the companies to perform well in response to surging aggregate demand level. As a result, demand for gold bonds falls, leading to a downtrend in the market prices.

Hence, during the upswing of the business cycle, gold prices tend to be relatively lower.

Susceptible to Currency Fluctuations

Any fluctuation in currency values tends to have an impact on the price at which gold is traded. Appreciation of the US dollar, the benchmark currency, causes gold prices to falter due to higher inflation rates. As the import expenses of a country rise significantly, the total investment level of a country falls, consequently affecting the demand for gold and its prices.

A sovereign gold bond scheme is one of the most profitable investment avenues, owing to its widespread benefits and low restrictions. Individuals having a low aptitude for risk but want to enjoy substantial returns on their corpus can choose to invest their funds in this scheme, as they are one of the highest returns bearing government-mandated scheme.

Individuals can also diversify their investment portfolio through sovereign gold bonds, which, in turn, compensates for exposure to stock market risks. In the event of the stock market downturn, gold tends to appreciate, thereby mitigating the overall risk level of an entire investment portfolio for the investors.

Compared to physical gold investments and gold ETFs, a sovereign gold bond can arguably be more profitable, as it is backed by the highest financial authority. However, purchasing such sovereign bonds should be considered only after analysing the financial goals and time frame of investment, as considerable funds have to be kept locked in to realise subsequent returns in the future. Also, interested individuals need to follow the RBI’s website periodically to for successful subscription to such sovereign gold bonds.

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Sovereign gold bonds opens today.

Where to buy Sovereign Gold Bond?

The SGBs will be sold through scheduled commercial banks like the State Bank of India (SBI), HDFC Bank and others. Sovereign Gold Bonds can also be purchased from Stock Holding Corporation of India Ltd (SHCIL), Clearing Corporation of India Ltd (CCIL), designated post offices and recognised stock exchanges, namely the National Stock Exchange of India Ltd and Bombay Stock Exchange Ltd.

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Sovereign Gold Bonds issue to open for subscription : How to buy gold bonds online ?

A customer can apply online through the website of the listed scheduled commercial banks. The issue price of the Gold Bonds will be ₹ 50 per gram less than the nominal value to those investors applying online and the payment against the application is made through digital mode.