How to Invest in Gold – 6 ways explained !

Gold recently crossed its Rs 30,000 per 10 gm mark . This is a historic moment and I am sure a lot of people want to get into gold investments for their own set of reasons. But how to invest in gold,  given there are so many ways of gold investing these days, most of the people are stuck with so much of choices . More than the price , the bigger deterrent the confusion of “best option to invest in gold”.

Options for gold buying

6 ways to invest in gold

In this article we will see how to invest in gold in different ways and what are the pros and cons of all the options. The main focus of this article is to make the options more clear to you and help you take decisions.

1. Physical gold

The oldest and most widely used way to invest in gold is in the form of physical gold. I would say this is form with which most of the people are comfortable with . From centuries, physical gold is the only way to invest in gold . Now coming to the point , there are two ways to invest in physical gold

a) Jewellery – This is the most famous way of investing in physical gold. This is mostly done for consumption rather than “investment” .  Obviously jewellery is also an investment product in itself , but most of the people buy it for consumption purpose. The best part of Jewellery is that its very easy to invest in it , all you need to do is cash or cheque and that’s all , you can buy it . Also the whole family is more comfortable with this option. However the sad part is that you do not just pay the market price of gold , but also making charges for jewellery . As its in physical form , there are chances of theft also . One more problem with jewellery is that there are chances of fraud at times , you can be sold a inferior quality of gold in the name of “high quality” gold. So its very important from where you buy it.

When should you buy ?

Its advisable that if there is some marriage going to be there in your house in near future, you can invest in physical gold . Also note that you are very clear that it will not be required for emergency in short term. It might also be a possibility that you are more attached to physical things and do not believe in online option , that’s another reason you can go for it.

b) Gold Bar/Coin

Gold Bar and Coins are another good way to invest in physical form of gold. Gold bar/coins are sold by all the banks and jewelers . Its a good way to invest in gold if you want to do it for pure investment purpose or for some distant future marriage like your sister or daughter marriage. The good point about bars/coins is that depending on the requirement you can either buy more (bars) or less (coins) and easily available at Banks and jewellery shops , but banks only sell it , do not buy it back. Also generally there is no consumption done on regular basis so a person can keep it in locker or some safe place for long time. The bad part of gold bar/coins are that its always available at a premium price of 5-10% and at the time of selling them , you again will get a discounted price of 5-10% , so overall your returns will go down .

When should you buy ? 

You can buy a gold bar/coin if you are too attached to physical gold and can not go for online option . You can buy it for investment purpose also , but note that returns would be compromised because of the discounted price you get at the time of selling and at the time of buying . In case you have some marriage at home in coming future (not very near) , then also you can buy it . 

2. Gold ETF

Gold ETF’s are just like stocks , you can invest in these if you have a demat account . An ETF a online version of physical gold . The best of gold etf is that its convenient to invest in Gold ETF if you already have a demat account and can start with a small amount (1 gm value) and as and when you want you can invest from time to time. However the sad part is that you have to pay the brokerage and you do not get a feel of gold in your hands which you get with physical gold . The gold ETF can also be illiquid at times if you have not chosen the right one . Also there are high chances that you will sell your gold ETF in the time of small emergencies which you will not do with physical gold. Gold BeeS from Benchmark and Kotak Gold ETF are one of the biggest gold ETF’s in India right now and they are highly liquid. We recommend Gold ETF’s to our Financial Planning clients as their expectation is liquidity + some exposure to gold for investment point.

When should you buy ? 

You should buy gold ETF if you already have a demat account and would like to invest from pure investment perspective , You can consider them as liquid as you can sell them on any day in the stock market . 

3. Gold Fund of Funds

Gold Mutual funds are those mutual funds which invest in another parent mutual fund which finally invests in stocks of gold mining companies and companies which are related to gold related activities . They also buy physical gold , but in very small quantities . This is not the suitable investment for those who want to track gold prices , because these funds do not invest most of their money in gold , but gold related companies . So its mainly a equity fund which invests in companies. For example AIG World Gold Fund , which does nothing but invests in its parent mutual fund AIG PB Equity Fund Gold, which finally invests in different companies . The good part of these funds is that if you are optimistic about the future of those companies involved in gold, these are good funds , but the sad part is that you will pay expense ratio two times because it is fund of funds. A lot of people invest in these funds by mistake thinking that they invest in real gold.

When should you buy ? 

By now you will be very clear that these are actually like a sectoral fund which invests in only those companies which have their work in gold related things like mining gold etc. So its extremely risky or rewarding . So if your criteria is to invest in gold companies and not gold , these are the funds to invest in 

4. Gold Saving Funds

These are the mutual funds which invests in real gold . They pool in money from people and buy gold and you can buy the units of these mutual funds . The best part of these funds is that you can systematically invest in gold per month through SIP route . The best part of this is that you dont need to have a demat account to invest in gold saving funds . You also can invest regularly in gold through SIP through this funds.  But the sad part is that you pay administrative charges and expense ratio just like any other mutual funds.

When should you buy ? 

This is really a great way to invest in Gold if you do not have a demat account and would like to regularly invest on monthly basis . This is highly liquid option also because you can anytime sell the gold fund units like any other mutual funds unit . 

5. e-Gold

e-Gold was launched some time back in India from the exchange called NSEL , which also has other commodities like Silver and Platinum in e-format . Its very much like Gold ETF , where you can invest in Gold in online format . For investing in E-Gold you still need a demat account, but with one of the companies authorised by NSEL (list here)  . The best part of this option is that you can also take physical delivery of gold with some terms and conditions. But the sad part is that not all big broking houses demat account can be used to buy this, you need to open another demat account for this and this option is not too much popular with retail investors .

When should you buy it ? 

You can buy this if you need physical delivery of gold at some future point of view , but you also want to benefit from the online advantages like the market price and no storage cost at your side. Read more about this in detail here

6. Gold  Futures

One more option to invest Gold is through Gold Futures, but I would like to call it more of a trading activity and not “investment” because its short term in nature. You can use Gold Future to protect the pricing . If the price of gold today is Rs 30,000 and a 3 month gold future price is 30,500 , then you can lock the price at this moment to 30,500 , so that when you want to buy the gold after 3 months, you get it at 30,500 only . This would require a little bit of knowledge on how future’s work .

When should you buy ?

This option is bit more technical and one should only use it if you have decent amount of knowledge . Do this if you want to lock the price of gold which you want to buy in future, if you fear that prices can go very high . 

Which option are you going to choose and why ? Are you now clear on how to invest in gold as per your condition ?

100 CommentsAdd Comment

  1. MOHIT

    Hi,
    I want to invest in physical gold on every month basis and I can invest every month Rs.2000-2500. So please suggest me, what can I do and from where I can purchase gold with 999.0% purity.
    Regards,
    Mohit

  2. Prafull

    Hi Manish,
    Thanks for all the excellent work you are putting up.
    I wanted to know about such a gold investment in which I am free of wealth tax and most importantly in which I can get income tax benefits, say, that I can get redemption in income tax?? Can u give me such a link in which, how that investment works, is explained.

  3. BV Anil

    I’m a govt employee and I get subscribe around 1lac every year in PF which has an interst of around 8%.
    I’m planning to invest a lumpsome amount of around 1lac in gold fund and also.. start any monthly investiment plan in gold.I dont have a demat.
    I heard bullionindia.in and Reliance gold plan are newly introduced.
    I dont need physical gold but am looking for good returns.

  4. BV Anil

    Hi Mr. Manish,
    I earn around 4lac/annum. I PF subscribtion is around 1lakh per annum at an interest of 8%.
    Honeslty, Im looking forward for an entity which gives good returns.
    So do you think gold fund is a good option for me?
    Could you please let me know if Reliance gold plan is good or if bullionindia.in or could you please tell me … which is the best wherein I can get the amount in liquid form when ever I need?
    I dont have a demat account. And moreover I’d like to go for a one time investiment plan or almost 1 lakh for one year- two years.

  5. Anurag

    Hi Manish ,

    I need physical gold after 4-5 years .What option should I choose to average the Gold prices in a systematic way .Should it be gold etf or e-gold ?

  6. Mandeep

    Hi Munish, Plz tell me about GOLD GINNI.

    can we buy GINNI in physical form, may be it is best than jewellery.

    Regards,

    Mandeep

  7. Mandeep

    Hi Munish,
    I read the Article, there are many options to invest in GOLD. As per my requirements, i am investing in Reliance Gold Saving Fund (G), which i think, is best for me and it is also giving me a good return.

    As per my views, SIP option is best,

    Regards,

    Mandeep

  8. Swagata Guha

    Hi Manish,
    I invest in gold through benchmark gold etf. I m very fond of investing in silver too. But not in physical form. I came acroos an article in business standard on investing online in gold and silver at wholesale price through bullion India platform (article was given on 22nd October)
    http://www.business-standard.com/india/news/now-invest-online-in-gold-silver-at-wholesale-prices/192427/on
    Bullion India provides the convenience of buying as low as 0.1 gm of gold and 1 gm of silver at live wholesale prices. Along with the price benefit Bullion India avails facilities like no storage fee, free insurance, no account opening charges and no brokerage. These fully insured bars are home delivered at a nominal cost.

    Is investing in this way safe and reliable??? Can you guide me regarding this article? Can I go for this?? Pls suggest.

  9. Suchi

    Hi Manish,

    Can you please tell me the difference between e-gold and gold etf ?

    I can invest 1-2,000 per month in this and I don’t mind buying anyother metal also, if it is profitable. Also, I don’t require it in physical form.

    Please suggest which one is better.

    Do I need to open trading and demat account both for investing in either of the two?

    Please let me know in terms of service and brokerage, from whom I should get my demat account openned?

    Sorry for so many questions, this will be my first investment :-)

    Thanks,
    Suchi

  10. Suchi

    Hi Manish,

    I think I have found the right person who can answer my questions.

    I want to invest in gold monthly(1,000-2,000 per month). Do not require it in physical form, just need profit 😉

    By now, I think Gold ETF and e-gold are most attractive but m not very clear about the difference between the two.

    Also, do I need to open trading account and demat account both for investing in any of the two?

    In future I don’t mind investing in any other metal too. I think, I can avail this facility in case of e-gold but m not very sure about gold etf.

    Please let me know which one can be the best option for me and from whom I should get my demat account openned?

    Thanks

  11. Sravi

    Hi Manish ,

    Thanks for the wonderful article again. I want to invest in gold (not in physical form) for my kid’s marriage and now she is 2 years old. please help me in which form of investment is good for me in long term considering all the charges.

    1. Shall i get demat account and invest in gold etf ?
    or
    2. Shal li invest in gold saving funds through SIP.?
    or
    3. Shall i go for e-gold?

    Please throw some light on it.

    Thanks,
    Sravi

  12. Ram

    Hi Manish

    I found different banks are charging different premiums for Gold coins (in some cases, it is more than 15%) and Banks will not buy back the Gold. Then, there is no point in investing in Bank Gold Coins.

    I found some reputed jewelers are selling the Gold coins/bars at Market value of 24ct. And they will buy back also.

    Hence, I hope out of all the above options listed and detailed by you, purchase of Physical Gold coins/bars at ‘No Premium’ from Reputed jewelers is the BEST OPTION.
    I hope this is the main reason for its popularity among Middle Class Indians. I think more than 70% of Gold investment in India is done in this form only (Physical Gold bars purchased at Reputed Jewelers at No Premium charges).

    Request you to pl. correct me if I am wrong.
    Regards, Ram

  13. smitha

    Hi Manish,

    You wrote that at the time of selling gold, there is a discounted price of 5% to 10%. We have bought gold coins before and they said if it is the hallmark variety, we will get the price of gold prevailing that day. No discounts or whatever.

    Could you tell me what is this discounted price at the time of resale of gold coins/bar?

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