Things You Need To Know Before Investing In Gold

Investing in gold? Our guide covers physical and online options, including Digital Gold, Gold ETFs, and Sovereign Gold Bonds. Read to make an informed decision

28 Jun,2023 10:34 IST 2791 Views
Things You Need To Know Before Investing In Gold
While earlier it was the practice to buy and store jewellery and gold coins, in today’s digital age one can buy gold online as well as take a gold loan online in India. Whether you buy physical gold or buy gold online, there are pros and cons to both types of investment. In this article the different types of gold investments and the advantages and disadvantages of each are discussed.

1. Physical Investments In Gold:

Physical gold can be bought in the form of jewellery, coins, biscuits or bars from physical gold stores. You can purchase this by paying upfront or through EMI. Some stores also offer the option for customers to deposit a monthly amount for 11 or 12 months, at the end of which you can buy the item of your choosing. Some may even offer to put in the 12th installment on your behalf.

At the time of purchase, the customer needs to keep in mind the price of gold in the city for that day. This may vary according to the purity or the karat value. 24K gold is the purest and the most expensive. One also needs to be aware of the reliability of the seller. It is best if the purchase is accompanied by a Hallmark and certificate regarding the purity of gold.

Extremely important to note is that part of the cost of jewellery and physical gold goes towards making charges. While you can get a loan against gold, the gold loan in India is based on the value of the physical weight of the gold and does not factor in the making cost. You can get a gold loan by physically taking the gold to a jeweller, bank or NBFC. You can also get a gold loan online, making the gold loan process relatively simple.

The biggest disadvantage of physical gold is the safe-keeping and the costs associated with it – locker charges, insurance or both. Sadly today, even lockers are not totally safe. Gold prices also are prone to fluctuations in the short term. They are affected by import duty and taxes, global prices, market conditions and US dollar dynamics as well as issues of demand and supply. These fluctuations affect the price of both physical gold and the online digital gold products discussed below.

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2. Online Investments In Gold

One can invest in gold online through Digital Gold, Gold Exchange Traded Funds (ETFs),Sovereign Gold Bonds (SGBs) and Gold Mutual Funds

a. Digital Gold: There are several mobile and web applications such as PayTM which allow an investor to buy gold at the click of a mouse for as little as Re 1/-. The gold purchased is stored on the investor’s behalf by the seller and often comes accompanied by a guarantee of safety and purity. You can either sell or avail a gold loan online against it with equal ease. There is also the option to have the gold delivered to you either as a piece of jewellery or a biscuit etc. which usually entails a cost. The factors to consider while buying digital gold is the authenticity of the website/application, integrity of the service provider, making cum delivery charges, as well as the price at which the gold is offered compared to the market price of the day.
b. Sovereign Gold Bonds are bonds offered by the Indian Government. While these offer some tax concessions, investors need to keep in mind the lock-in period, the minimum purchase amount of 1 g, and the maximum purchase amount of 4 kg.
c. Gold Exchange Traded Funds are funds which invest in gold derivatives or hold physical gold. One can invest in it through a demat account. The major advantage is the opportunity to invest in a gold-related product without the responsibility of physical storage.
d. Gold Mutual Funds invest in gold related assets such as physical gold, gold mining companies, Gold ETFs, Gold Futures and derivatives, etc. Investors need to keep in mind the fund manager’s expertise and fund management expenses apart from market conditions while considering this as an investment option. A demat account is also required.

Buying gold online removes some of the disadvantages associated with safe-keeping of physical gold. In addition, for the digitally literate, it is far easier to buy and sell. However, like any other investment product, one needs to consider the risks and advantages associated with each kind of gold investment in order to evaluate whether it is best suited to your needs.

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Disclaimer: The information contained in this post is for general information purposes only. IIFL Finance Limited (including its associates and affiliates) ("the Company") assumes no liability or responsibility for any errors or omissions in the contents of this post and under no circumstances shall the Company be liable for any damage, loss, injury or disappointment etc. suffered by any reader. All information in this post is provided "as is", with no guarantee of completeness, accuracy, timeliness or of the results etc. obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. Given the changing nature of laws, rules and regulations, there may be delays, omissions or inaccuracies in the information contained in this post. The information on this post is provided with the understanding that the Company is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. As such, it should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers. This post may contain views and opinions which are those of the authors and do not necessarily reflect the official policy or position of any other agency or organization. This post may also contain links to external websites that are not provided or maintained by or in any way affiliated with the Company and the Company does not guarantee the accuracy, relevance, timeliness, or completeness of any information on these external websites. Any/ all (Gold/ Personal/ Business) loan product specifications and information that maybe stated in this post are subject to change from time to time, readers are advised to reach out to the Company for current specifications of the said (Gold/ Personal/ Business) loan.

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