Best option to invest in gold

 

Government is hell bent on reducing gold imports and Indian consumers are hell bent on buying gold. Every now and then RBI comes out with a new restriction so as to reduce gold import but much to its chagrin Indian consumers are simply not listening. World Gold Council expects India's gold import to touch a record high of 300-400 tonnes in first quarter of FY14. Indians buy gold in different formats and if you are planning to join the mad rush, you can use this article to analyse the pros and cons of different type of gold investments.

 

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 Jewellery:

Pros

Cons

·     Investment is very easy. You only need cash to invest.

·     If you invest early it saves you at the time marriage.

·     Status symbol.

·     You own it in physical form, so threat of theft.

·     Making charges offsets the profit in terms of price appreciation (varies from 10% to 35% at times).

·     Normally it’s a virtual investment as people don’t want to sell it.

Jewellery as an investment option

In Indian context this is not a recommended investment option if you are emotionally attached to gold. Indian culture do not permit selling gold jewellery unless its matter of life and death. If you can somehow keep away from this emotional feeling and treat it just as an asset class then maybe you can think of this option.

 

Gold Coins:

Pros

Cons

·     Value is quite comparable to international gold price.

·     One of the most recognized and reliable way to invest in gold

·     Investment is very easy. You can buy it from banks, local shops etc.

·     Big investment is not required to take exposure as it’s available in smaller denominations.

·     Easy to store and hide.

·     Very liquid.

·     You own it in physical form, so threat of theft.

·     You pay a premium of 4% to 10% while buying and same % is discounted while selling resulting in lesser overall return.

Coins as an investment option

For this option too you need to keep emotional attachment at bay.

 

Gold Bars:

Pros

Cons

·     Value is quite comparable to international gold price.

·     Premium/discount paid while purchasing and selling is the least

·     Most recognized and reliable way to invest in gold.

·     Investment is very easy. You can buy it from banks, local shops etc.

·     Quite liquid.

·     You own it in physical form, so threat of theft.

·     Initial investment can be large as smaller denominations are not available.

·     Increased risk of forgery.

·     Storage cost for large bars.

Investment rationale

If you are comfortable with storage and large initial investment amount, this can be one of the best options as loss in terms of premium/discount is the least. Issues of fake purchases can be taken care if you buy from authentic source.

 

Gold ETF’s:

Pros

Cons

·     Investment is very easy. You only need a dmat account for investment.

·     No concept of losses in terms of premium or discount.

·     Safe as no physical possession.

·     Low initial investment.

·     Various options available because of technology advancement like SIP etc.

·     You don’t possess it in physical form so might be at loss in crisis situations (war, bankruptcy etc).

·     Might have liquidity issue.

·     Complex structure.

·     Transaction fee and annual maintenance charges.

Investment rationale

These are relatively new options and are not very popular due to their complex nature but they provide very easy access to gold investment without having the burden of physically owning it.

 

Gold Mining Stocks:

Pros

Cons

·     A way of taking indirect exposure.

·     Capital appreciation potential is more as compared to direct investment.

·     Safe as no physical possession.

·     Low initial investment.

·     Highly Liquid.

·     You don’t possess it in physical form so might be at loss in crisis situations (war, bankruptcy etc).

·     Deep research required before investing.

·     Volatile and risky as compared to other options.

Investment rationale

It’s one of the most creative investment options and hence requires a lot of careful research before investment. If you are a seasoned investor and enjoy making your hands dirty this can be an option for you as you can strike gold if you choose the right one.

 

Conclusion:

Gold reserves are held in significant quantity by many nations and they are synonymous to money. Gold investment acts as the best shield against economic downturn and crisis situation, so it’s a wise decision to take exposure via any of the routes suggested above which suits you the best.

 

 

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