With Diwali approaching, Priya found herself thinking about her family’s tradition of buying gold on Dhanteras. For generations, her family believed this was an auspicious way to attract prosperity.
Jewellers have seen a noticeable boost in sales during festivals, with more people buying gold. What’s more, they don’t seem to mind paying a higher price, since gold is seen as a good investment.
This year however, instead of heading to the jewellery store, Priya had other plans.
After a conversation with her trusted chartered accountant Abhay Asknani, Priya realised there were smarter ways to invest in gold that went beyond ornaments. ’People often overlook the financial benefits modern gold investments can offer,’ Abhay explained. ’From digital gold to sovereign bonds, today’s investors can make gold work harder for them, while still honouring the festive tradition.’
This made Priya pause and think. With multiple options available, how could she balance tradition with smart financial planning?
Fortunately, in today’s digital age, there are several ways to invest in gold without physically holding or storing it. Whether you want to buy gold for its traditional value or as a modern investment, here are five smart ways to invest, with a balanced look at their pros and cons.
1. Digital Gold
What it is:
Digital gold is a modern way to buy and invest in physical gold, but online instead of in-person. The gold you purchase is stored securely in insured vaults, which makes it convenient and safe.
Pros:
• Accessible and affordable: You can buy gold in small quantities, making it easy for millennials and Gen Z investors to enter the market.
• No storage worries: The seller takes care of securing the gold in vaults.
• Flexible: You can buy and sell at your convenience online.
Cons:
• Transaction fees: While storage may be handled, there are usually transaction fees that can add up.
• No interest: Unlike other investment options, digital gold does not generate regular returns.
2. Gold Exchange-Traded Funds (ETFs)
What it is:
A Gold ETF is a mutual fund-like investment that tracks gold prices and allows investors to benefit from price movements without physically owning gold.
Pros:
• Diversification: Provides exposure to gold price movements without the need for physical ownership, making it a good option for a diversified portfolio.
• Liquidity: ETFs can be easily bought and sold on the stock market, just like regular shares.
• Cost-effective: Typically, it’s cheaper than buying physical gold due to lower management costs.
Cons:
• Counterparty risk: Since you are investing in a fund, there’s a dependency on the financial stability of the issuer.
• Management fees: Although costs are low, management fees still apply and can reduce overall returns over time.
3. Sovereign Gold Bonds (SGBs)
What it is:
SGBs are government-backed bonds issued by the Reserve Bank of India, offering both interest and capital appreciation tied to the price of gold.
Pros:
• Government security: Backed by the Government of India, these are a very safe investment option.
• Interest income: Unlike physical gold or ETFs, SGBs offer an annual interest rate along with gold price appreciation.
• Tax benefits: If held until maturity, the capital gains are tax-free.
Cons:
• Lock-in period: SGBs come with an eight-year term, though early exit is allowed after the fifth year.
• Liquidity concerns: While they can be traded on exchanges, they may not be as liquid as ETFs or digital gold.
4. Gold Mutual Funds
What it is:
Gold mutual funds invest in a combination of gold stocks or assets related to the gold market, such as gold ETFs or shares of gold mining companies.
Pros:
• Diversified exposure: Gold mutual funds provide exposure to gold prices and related sectors, offering a more diversified investment.
• Active management: Professional fund managers make investment decisions, aiming to maximise returns.
Cons:
• Fees: You’ll need to pay management and expense fees, which can eat into your returns.
• Risk of poor performance: Since mutual funds are actively managed, their performance depends on the fund manager’s choices.
5. Gold Ornaments
What it is:
Buying gold jewellery has been a longstanding tradition during festivals like Dhanteras. Apart from the investment angle, ornaments serve as wearable assets.
Pros:
• Tangible asset: Gold jewellery is both an investment and an adornment, making it a dual-purpose buy.
• Emotional value: Besides its monetary worth, jewellery often carries sentimental value and can be passed down through generations.
Cons:
• Making charges: Jewellery comes with added costs such as making charges, which can range from 10 per cent to 20 per cent of the gold value.
• Storage and insurance costs: Physical gold needs to be securely stored, often at additional cost, and can be more difficult to liquidate quickly compared to digital forms of investment.
There’s no one-size-fits-all solution when it comes to investing in gold. Whether you prefer the convenience of digital gold, the security of SGBs, or the traditional value of gold ornaments, each option comes with its own set of advantages and disadvantages. As Dhanteras approaches, it’s a great time to reflect on which type of gold investment aligns with your financial goals, risk tolerance, and liquidity needs.
If your goal is long-term growth and security, SGBs or gold ETFs may be the better bet. On the other hand, digital gold offers a modern, flexible way to start small and build your portfolio. Whichever route you take, investing in gold during the festive season could indeed bring both prosperity and financial stability.