Gold has always caught attention as investments. Festivals add to this charm as they form part of rituals to become top of items in the shopping list. In the given scenario people buy and consume gold in different ways. With advent of technology and development in financial markets, gold is no more jeweler dominated market. One can purchase it through various other means with advantages like purity & safety. But still the jewelers are not crying as people still like to buy/invest in gold through them. This article will enumerate the avenues available to invest in gold during this festive time.
Before we move forward, it is worth mentioning that gold is an important part of any investment portfolio. But the quantity as any other asset class depends on your individual requirement, risk appetite and future goals. So we have already answered “How much to buy” in previous articles, this is an attempt to tell “How” to buy gold. Below is the list of various avenues available today to buy gold:
1. PHYSICAL GOLD
Physical Gold can be purchased through the below two sources
- Jewelers
- Banks
Jewelers: This has been the traditional source of buying gold since ages. The most common form of buying physical gold has been jewelry. The other forms available with the jewelers are gold coins, utensils, statues and bars. Indians are big consumers of gold when it comes to jewelry. Wearing gold is status symbol and many favor jewelry over coins or bar as gold can easily be converted to cash, new jewelry or may be coins. Gold in the form of jewelry should be purchased only for ornamental use and not for the purpose of investment as it loses value while converting to cash/gold in form of making charges. But still people favor it countering that they enjoy wearing it and showcasing status and for this a loss of 15-20 percent is not a deterrent.
Banks: Gold Coins and Gold bars are available now in mostly all the banks (SBI, ICICI, BOB to name a few). Very soon the marketing departments will call you for booking it as they have their own targets and figures have shown that banks have imported handsome quantity to sell to Indian buyers. (not sure about this year)
Now the question arises-whether to purchase physical gold from jewelers or bank?
Below is the comparison of gold purchased from jewelers and gold purchased from banks (with the advantages and disadvantages)
2. Monthly Investment Schemes managed by jewelers
Few jewelers manage monthly contribution schemes. Investor pay for the entire year and some jewelers also contribute 1 or 2 installments. These are of two types. In one variation one accumulates in terms of Rupees contributed and investor redeems as per the rate prevailing. In the second type the investor accumulates in grams. So here he can take advantage of the price fluctuations throughout the year and redeem when the prices are high. The advantage like an SIP it is disciplined way of investment and one can plan in advance. The drawback is that few jewelers compulsorily redeem in jewelry to earn on making charges. Conversion to coins/bars is not allowed. Also instant purchases cannot be done under these schemes.
Before moving to other options available to buy gold, the question arises should gold be bought in physical form or electronic form.The biggest disadvantage of buying jewelry in physical form is the need to keep it in safe custody as it carries high risk of theft. This feature makes electronic gold more attractive. Moreover, in electronic form, a person can purchase as minimum as 1 gram of gold which is not always possible in case of physical gold.
3. GOLD ETFs
Gold Exchange Traded Funds are very popular these days. These are mutual fund schemes that invest only in gold. Its units are held by the investors in electronic form. Generally, one unit of Gold ETF is equivalent to approximately one gram of Gold and hence its price is also approximately equal to one gram of gold. (there is some difference noticed in last few months) The minimum unit that can be purchased in Gold FTF is 1.The units of Gold ETF are traded on stock exchange and can be bought and sold like ordinary shares.
The biggest advantage is that one can be free from safety angle. ETFs are like securities which can change hands like other securities. And the disadvantage is the cost as broker charges both ways to buy or sell ETF units. Also if you open a demat account only to buy gold ETFs, the demat maintenance charges will also eat part of your gains. Also you will have no enjoyment of touching or wearing your investment.
4. E-GOLD
E Gold was launched recently by the National Spot Exchange. (NSEL) E Gold too is an electric form of holding Gold with the only difference that here the investor is directly the owner of Gold whereas in Gold ETF the Asset management Company is holding the Gold on behalf of the investors – right now regulator allowed them to hold certificates also. (right now you may not be able to buy E-Gold)
Gold ETF and E Gold have slightly distinctive features which are listed below:
5. GOLD FUNDS
Gold funds have been launched by mutual funds as fund of fund scheme that invest in Gold ETFs. Below are the advantages and disadvantages of Gold Funds. Normally fund houses with ETFs have launched these funds.
6. 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. The idea is that gold is a natural limited quantity. If the gold is in demand the companies engaged in gold business will also gain from the demand. In India, there are very few listed companies (Like MMTC) associated with gold. Therefore these funds are essentially global funds and Indians can invest through the feeder fund which operates in India through the Indian Mutual Funds. These funds involve the following risks
- Equity risk
- Gold price risk
- Currency risk
Hence low risk seeking investors should not invest in these funds and look for other suitable options like Gold ETF/E Gold.
7. GOLD FUTURES
These are derivatives (F&O) where the underlying asset is gold prices. Dealing in gold futures requires knowledge of international commodities market and understanding how local commodity exchange works. This is a short term product mainly for trading in gold rather than investing. Hence, from the point of view investment, this product should be avoided.
If you ask me, the best preferred option is Gold ETF amongst the various alternatives. But I have seen that people are comfortable buying jewelry or coins as it suits their current consumption also. Share what do you feel on this and how are you planning to buy gold this festive season.
It is not National Stock Exchange that sells e gold but the recent defunct National Spot Exchange Limited (NSEL) which is an entirely different entity and not to be confused with NSE and this is how I guess they have cheated the common man thinking that both are same or similar or comes under regulation which eventually proved that they are not and now we are staring at 5000+ crore scam!
Hi Siva,
My bad – that was a typo, I have already made the correction. Thanks.
nowadays a new kind of gold has come up & people are flocking to invest in it. its bitcoin .. valued at 200$ + for each bitcoin. was about 10$ last year.
Thanks, I am looking for some this types of advise.
but can You mention some Good Gold ETFs?
Hi Vishal,
There is not much difference between gold ETF when you look at performance. But you can consider lower tracking error for making your selection. Goldman Sach( Previously Benchmark and the oldest one), Reliance, Kotak, HDFC you can look at with this parameter.
Very Good Artical Hemant Bhai… But I think that savings in gold must not be more than 1% of total savings also all expensive/semi preceious metals are made to wear/use not for investment purpose. Happy Diwali in advance to you and all the readers.
Hi Kailash,
Yes you can define that rule when you consider only for wear/use. But with ETFs it is also looked as an investment opportunity but generally high movement in Gold happens in the medium or short term. Due to this reason exposure in gold is advised to be kept low.
I have invested in E-Gold… But now my money stuck in that.. No news from NSEL… So i think E-gold is not option to invest.
Hi Deepak,
Yes e-gold is not an investment option at present.
How is company called bullionindia ?they have com out with USP ( unit systematic plan ) .do you think it’s safe to invest in this company ?
Hi Prakash,
Investing in a company has its risk associated and diversification helps to an extent. Its wiser to keep your investment simple and choose avenues which you can easily understand.
Can you please review “MCX Gold Petal” product? It allows delivery in physical format as well as demat format. In case of physical format, the holding should be at least 8 grams.
What is difference between E gold and “MCX Gold Petal”? is MCX trustworthy to buy gold for physical delivery?
Hi Sanjay,
Its an option to buy gold in both the format. Not much different from e-gold. Difficult to comment on MCX although it has been in news.
Hemant, I stays in Japan.
Here Mitsubishi metals have a plan called ‘my gold plan.’
This works like SIP where u commit a fixed sum each month. They devide the sum in working days and purchase gold at prevailing price and deposit in your account.
This way u get average montly price.
Best part is at anytime you can decide to either take physical delivery or equivalent amount in cash on prevailing rate. They also pay some yearly bonus on your deposit.
Scheme is self operated without any broker involvement. Subcription is only through ECS. Gold quality is guaranteed as Mitsubishi themselves mint the gold.
There are of course some charges for account maintain and bank transfer but scheme is very convenient to operate. You get rate discount if operate by web.
I found reliance also operate this scheme in india however they charge premium over market rate.
I find this scheme much better to accumulate gold for future requirement with an option to withdraw cash or gold any time.
Hi Eklavya,
Yes Reliance has a plan “My Gold Plan” where gold is purchase by averaging cost in 20-22 days.
Will be reveiwing the plan.
Dear Hemant,
Excellent article.I would like to share the hard facts of selling old gold ornaments. My elderly relative approached many jewellers including her own,who immediately told her a price which was about 40% less value.(she was going through a financial crisis).Finally she sold the gold at a 35% discounted price.Please remember unlike now,jewellers earlier neither used to warrant quality nor the assurance of buyback. In my opinion Gold ornament should only be made during the marriage etc, but for festivities if it is absolutely required then buy coins from Jeweller to avoid high bank charges.And I do agree Gold ETF is the best option to buy gold as investment.Happy Diwali to whole team and families.
Thanks Capt Dutt for your valuable inputs.
We informative article.
Can you advice on investment avenues for Silver, just as you have done for gold?
Hi Ajit,
Will consider writing on it.
Hi Hemant
In the past I used to buy one gold coin from the bank on Dhan Teras or Akshay Tritya. For many years I have not purchased any physical gold. This Diwali is not going to be any different. Because of Reserve Bank restrictions I do not see any agressive marketing of gold by banks and post offices. So far I have not received any email or call from the bank asking me to buy gold.I have a SIP running in Reliance Gold Savings Fund which will continue.
Fearing a further hike in onion prices during Diwali I find many people buying and hoarding large quantities of onions.
very informative article by hemant as always. Thanks.
Well said by Capt Dutta, you get only 2/3 rd value of old jwellery if you
happen to sell those old items in the times of crisis. We, Indians have undue
craze for purchasing gold, it s’d be checked. Its good for improving
country’s economic health also. The best option is gold etf.
Thanks Hemant for a nice and informative article. You have posted this at the very right time (Few days before starting of festive season).I too agree that Gold ETFs are one of the best way to purchase gold.
Can you suggest some good Gold ETFs considering your experience and views.
Thanks once again and Appreciate your efforts
Amar
Hi Amar,
There is not much difference in the performance of Gold ETF of various MF companies. For your selection you can opt for one with low tracking error.
Hemant,
Thanks for summarizing the various options to invest in gold.
I personally prefer gold ETFs. I make it a point to purchase 1 unit of the gold ETFs each month (which is similar to the old school of thought of purchasing 1 gm of gold each month).
I prefer GOLDBEES when it comes to gold ETFs.
Regards,
Sandeep
Very interesting article. Thanks for this information Hemant.
There is one additional factor when it comes to Gold purchase, which is to keep the “home-minister” happy. In my view, even though the phyiscal form of Gold has its disadvantage from returns point of view, keeping our better half happy with the gold is priceless and beyond comparison on returns 🙂 So, it is better to take a slight dip in the returns by not going for ETF, but to go for jewellary coupled with Monthly investment scheme to buy gold. In the worst case scenario, we can always sell gold to meet any unplanned pressing needs. But we must buy gold from the certified jewellers so that we do not get duped on the quality of gold.
Regards
Manju
The best way to buy Gold is either Gold funds wherein you get chance to average your investment. If your wife want to spend and want jewellery, then you can buy physical gold jewellery
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