This Diwali Make A Golden Move
Although traditionally Indians have always preferred to buy gold in the physical form,
Although traditionally Indians have always preferred to buy gold in the physical form, especially during a festival like Diwali, there is now a better option of investing in gold with the purchase of gold funds, gold exchange traded funds (ETFs) or sovereign gold bonds. In short, go digital!
Conventionally, India is a country with festivals and traditionally, people generally tend to invest in gold not only for its value but also because it is termed true wealth. There is, in fact, an emotional connect with the gold that one possesses. Gold has been considered as the safest investment instrument and it protects an individual or family against any untoward events. People buy gold for a variety of reasons such as investment, hedging against inflation, asset allocation and also for its auspicious sentiment. As per the Indian Hindu calendar there are auspicious days to buy gold such as Dhanteras during Diwali, Dusshera and Akshaya Tritiya.
The ritual of purchasing gold during Diwali is considered an invitation to goddess Laxmi, the goddess of wealth and prosperity. Indian people buy gold on ‘muhurat’ as there is a predefined notion that it might fill their life with wealth and happiness. Now, there are various options available for an individual to invest in gold. One can invest in gold either physically or digitally. Traditionally, people used to buy physical gold in the form of coins, bullions or jewellery, that too for consumption purpose.
However, now individuals willing to invest in gold can purchase gold mutual funds, gold exchange traded funds (ETFs) or sovereign gold bonds rather than investing in physical gold. Investment in digital gold offers liquidity, acts as hedge against inflation and is considered safe haven by many. Let’s have look at different options to invest gold digitally. Physical gold has many drawbacks such as the need to store it in a safety vault or bank locker which adds up the cost, no flexibility in investment amount, purity issues, etc. Investors can circumvent these drawbacks by investing in gold mutual fund, gold ETFs or SGBs.
Gold Mutual Fund
Gold mutual funds are open-ended funds. These funds are one of the newest ways to invest in gold without actually holding it physically. The price of the fund is directly dependent on the price of gold. The fund manager usually invests in gold ETFs, which in turn invest in physical gold of higher purity. Changes in gold’s global market prices can cause changes in the price of gold or funds investing in gold. These funds offer lower returns as compared to equity funds and deliver returns when a market falls.
Gold ETF is a transparent vehicle which provides an effective and efficient platform for small investors to diversify their portfolio into gold. Investing in gold ETF assures the purity of gold and offers liquidity. In order to invest in gold ETF, you need to have a demat account. The expenses incurred in buying and selling gold ETFs are much lower than buying, selling, stor-ing and insuring physical gold. As per the Association of Mutual Funds in India (AMFI), the asset under management (AUM) of gold ETF was Rs16,336.82 crore as of September 2021 and inflow in the month of September 2021 in gold ETF was Rs445.6 crore.
Sovereign Gold Bonds
SGBs are government securities denominated in grams of gold. They are a substitute for holding physical gold. Investors have to pay the issue price in cash and the bonds can be redeemed in cash on maturity. The bond is issued by the Reserve Bank of India on behalf of the Government of India. SGB is free from issues like making charges and purity as in the case of gold in jewellery form. The quantity of gold for which the investor pays is protected since he receives the ongoing market price at the time of redemption or premature redemption.
To conclude, this Diwali take an informed decision and get rid of the traditional way of holding gold and adopt the digital way to invest in gold. This way you are at an advantage of holding pure gold without having any risk of theft, storage, or purity issues. Before investing in any of the above instruments one should first assess needs and objectives and understand how the instrument works and then decide to invest in the same.