Gold investment in India: How to invest, types, and benefits—All you need to know

Gold has long been a trusted investment option in India, and with the evolution of investment options, there are now several ways to invest in gold.

By: Express Web Desk

July 16, 2024 11:36 AM IST

4 min read

As the demand for gold has increased among investors, many view gold as an investment class where funds should be allocated. Here are the benefits of investing in gold: (File)

Gold has always been a preferred choice for investments in our country, long before stocks, mutual funds, and other financial options became part of the broader mix of investment options.

While traditionally, investment in gold was often associated with buying gold jewellery and coins, which meant acquiring physical gold, investments in gold today have evolved with time.

Gold is seen as a safe asset for investment, owing to its high liquidity and capacity to outpace inflation or any financial uncertainty. Universally recognised as one of the best investments to preserve value, capital, and purchasing power.

Here is all you need to know about investing in gold:

Types of gold investment in India:

There are several ways to invest in gold in India. Enlisted below are the popular gold investment options:

1. Physical gold:
The traditional method of gold investment involves purchasing physical gold in the form of jewellery, coins, or bars. This option provides tangible ownership of gold but also comes with the responsibility of secure storage and potential issues with purity and liquidity.

2. Gold exchange-traded funds (Gold ETFs):
Gold ETFs are investment funds that track the price of gold by holding physical gold or gold futures as their underlying assets. Investing in gold ETFs offers the benefits of gold exposure without the hassle of physical possession, as the ETF units can be easily bought and sold on stock exchanges.

3. Gold mutual funds:
Gold mutual funds primarily is investing in gold ETFs or stocks of gold mining companies. These funds provide investors with diversified exposure to the gold market and the potential for capital appreciation, while also offering the convenience of mutual fund investing.

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4. Sovereign gold bonds (SGBs):
Sovereign gold bonds are government-issued bonds where the investment return is linked to the price of gold. These bonds offer the advantage of earning interest in addition to the capital appreciation of the underlying gold, and they are backed by the government, providing an added layer of security.

5. Digital gold:
Digital gold platforms allow investors to purchase and store gold in digital form without the need for physical possession. These platforms typically offer the ability to buy and sell gold in small denominations, providing a convenient and accessible way to invest in gold.

Benefits of investing in gold in India:

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As the demand for gold has increased among investors, many view gold as an investment class where funds should be allocated. Here are the benefits of investing in gold:

Inflation Hedge: Gold has historically demonstrated the ability to maintain its purchasing power and even appreciate during periods of high inflation, making it an effective hedge against rising prices.
Portfolio Diversification: Gold’s low correlation with other asset classes, such as stocks and bonds, makes it a valuable diversification tool for investment portfolios, helping to reduce overall risk.
Liquidity: Gold is a highly liquid asset, allowing investors to easily convert their holdings into cash when needed, providing a reliable source of emergency funds.
Safe Haven: During times of economic or political uncertainty, gold is often seen as a safe investment, as investors flock to the perceived stability and security of the precious metal.
Tangible Asset: For some investors, the physical ownership of gold provides a sense of security and the ability to pass on wealth to future generations.

Factors to consider when investing in gold:

When building a gold investment portfolio, it’s important to consider the following factors:

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Investment Objectives: Determine your investment goals, risk tolerance, and time horizon to align your gold allocation with your overall financial plan.
Diversification: Ensure that your gold investments are part of a well-diversified portfolio, as over-concentration in any single asset can increase risk.
Costs and Fees: Understand the costs associated with each gold investment option, including purchase premiums, storage fees, and transaction costs, to optimise your returns.
Liquidity: Consider the ease of buying and selling your gold investments, as this can impact your ability to access your funds when needed.
Taxation: Be aware of the tax implications of your gold investments, as the treatment may vary depending on the investment type and your personal tax situation.

By understanding the benefits of investing in gold and the factors to consider, investors can make informed decisions and incorporate gold into their investment portfolios to achieve their financial goals.

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