Gold investment in India: How to invest, Options & benefits
gold-investment-opitons-in-india

Gold investment in India: How to invest, Options & benefits

Earlier investment in gold has been made in the form of jewelry or coins but now you can invest in gold in India with different investment options. 

You can invest in gold even without keeping the physical form of gold which cut down the gold selling charges.

I have taken physical as well as digital gold investments into account. Let’s go through the article to have better clarity about how to invest gold in India.

Gold Investment Returns in India

You can have multiple options to invest in gold from physical gold to bonds or funds. I have compared gold investment returns to give you a better understanding.

Investment TypeReturn on Investment
Gold Sovereign Bonds2.5% plus appreciation in the gold price
Gold ETFs10%-15%
Gold Funds7%-10%
Gold (physical)8%-9%

Different Gold Investment Options In India 

#1. Digital gold 

Digital gold is the electronic form of investing in physical gold. 

You can buy as low as Rs 100 (varies distributor to distributor) worth gold online without going anywhere. 

How to invest in digital gold 

You can now buy gold coins, bars, and jewelry online from PayTM, Motilal Oswal’s “Me-Gold” a digital gold online investment, and Stock Holding Corp. of India Ltd. 

Paytm gold

This is a joint venture between Metals and Minerals Trading Corp. (MMTC), a government institution, and Switzerland-based MKS PAMP. 

MMTC-PAMP India Pvt. Ltd. has appointed PayTM, Motilal Oswal, and Stock Holding Corp. of India as distributors of digital gold in India.

Another player is Digital Gold India (backed by World Gold Council) offers Safe Gold (digital gold) through Paisabazaar and ICICI bank.

icici gold

Quality of gold

The issuer of gold decides the purity of gold like MMTC-PAMP provides 24 carat gold of 999.9 purity, while Safe gold provides 24 carat gold of 995 purity.

Issuer stores your purchased quantity of gold till the time you sell that gold or get it delivered as physical gold. MMTC allows you to store gold for 5 years without any fee but Safe Gold you can store for 2 years only.

Digital gold redemption

You can redeem accumulated digital gold in the physical form if it has a minimum quantity of 1 gm if stored with MMTC and 0.5 gm if stored with SafeGold.

You will have to pay some charges for the minting of gold and delivery.

You can also redeem digital gold in the form of jewelry from the selected jewelers.

Pros

  • You can buy small fraction of gold and accumulate. 
  • Secure option than gold jewelry
  • You can sell the gold digitally when you find some benefit 
  • Take delivery whenever you need physical gold like marriage of your child.

Cons

  • You pay extra charges if you take delivery
  • No clear government norms
  • You don’t get instant returns

#2. Gold Sovereign Bond 

Gold Sovereign bonds is another alternative of physical gold, issued as a certificate by Reserve Bank of India. You can earn interest on the purchased quantity of gold.

Bond records the quantity and the price of purchased gold. 

Sovereign Gold Bonds comes under the debt fund category just like other corporate/government bonds. They have prefixed interest rates and tenure.

You can buy Gold bonds if you have a low-risk appetite because gold bonds are low-risk investments just like debt funds or fixed deposits.

Gold bonds don’t attract long term capital gains but interest earned on bonds is taxable.

How to invest in gold bonds

You can purchase bonds with a minimum of 1 gram of gold and a maximum limit of 4 kgs of gold.

You can buy from banks, stock exchanges, and post offices.

Sovereign Gold Bonds offer a fixed rate of 2.50% per annum. Banks calculate interest half-yearly and add to the investor’s account.

Bonds take gold price based on an average of the closing price of gold of 999 purity in three previous working days.

Tenure of these bonds is 8 years but you can exit after 5 years. 

Pros

Cons

  • Not a high return asset
  • 5-year lock-in period
  • Can’t convert in physical gold
  • Interest earned is taxable

Also read – How to invest in Sovereign Gold Bonds

#3. Gold Exchange Traded Funds

Gold ETFs are mutual funds (Exchange Traded Funds) that basically invest in physical gold. Each unit of Gold ETFs represents 1 gm of gold.  Gold ETFs prices are based on domestic gold prices.

The physical gold of the amount you bought gold ETFs is held with the custodian bank and valued from time to time.

This is a low-cost alternative of buying physical gold because you don’t have to bear the buying and selling charges that you have to pay while buying physical gold jewelry.

Gold ETFs have better price transparency because these are governed by SEBI and traded over NSE and BSE exchanges.

How to invest in gold ETF

You need a demat account and trading account with any broker to buy/sell gold ETFs. 

You get an average annual return of 8%-10% on gold ETFs.

Pros

  • Cheap alternative to gold
  • Secure investment instrument
  • Better returns than fixed deposits
  • No exit load

Cons

  • Low return asset
  • Can’t convert in physical gold
  • Invest lumpsum only 

#4. Gold Funds

Gold funds or Gold Mutual Funds are basically open-ended funds that don’t invest directly into physical gold rather they take some positions into Gold ETFs.

You don’t need any demat or trading account to invest in gold funds. 

How to invest in gold funds

You can buy different gold funds issued by various fund houses (just like Mutual Funds) as a lump sum or through a Systematic Investment Plan (SIP).

You earn little less in gold funds as compared to gold ETFs. You have to pay the exit load on selling gold funds. It varies in the range of 1%-2%.

Pros

  • Easy to buy with as minimum as Rs. 1,000
  • Returns equivalent to debt funds
  • Invest through SIP
  • Don’t need demat/trading account to invest

Cons

  • Exit load around 1% – 2%
  • Lower returns as compared to Gold ETFs

Also read – Best mutual funds in India.

#5. Gold Jewelry

You can buy gold in the form of jewelry, gold coin, or gold bars if you adore physical gold more. You have to pay some making charges while buying gold which jewelers deduct if you sell it off.

The deduction charges could be as high as 15%-18% of the gold price. 

Local jewelers can ditch you in terms of quality of gold if you don’t buy BIS hallmarked products.

Pros

  • You acquire the gold in the physical form
  • Price rises over time
  • MMTC offer buyback facility

Cons

  • Fear of theft
  • Liquidity costs 15%-20% value loss
  • No returns on invested money 

#6. Gold Coin Scheme

Metals and Minerals Trading Corp. (Govt. Institution) offers BIS-hallmarked gold coins of 5 gms and 10 gms weight, while 20 gms gold bars of 24-carat purity.

MMTC also offers buyback at the current price that gives an amazing facility to liquidate this glittering asset. 

You can also buy gold coins from jewelers, banks, NBFCs like Bajaj Finserv, and now available on e-commerce portals like Amazon, Flipkart.

How to invest in gold coin scheme

#1. Through MMTC

You can go to MMTC website to know about the products offered. However, you can ‘t buy gold coins online.

Gold coin through MMTC

You can buy gold coins from MMTC retail outlets in your city. You can check out the retail outlet address from MMTC’s website.

#2. Through Amazon

Go to the Amazon website. Search gold coin. Select the product from the catalog and buy that product.

Gold coin through Amazon

Pros

  • High-quality gold
  • Physically inspect the product at the retail outlet before buying
  • Buyback offers

Cons

  • Retail outlets in major cities only
  • Fear of theft
  • No returns on the invested amount

#7. Gold Saving Scheme

In Gold Saving Scheme, you can pay monthly installments to a jeweler for a fixed tenure. At maturity of tenure, you can buy gold equivalent to the amount invested by you including some bonus added by the jeweler. 

You can buy gold at the prevailing price of gold at the time of maturity of the scheme.

Some jewelers don’t offer you a bonus instead they pay your last installment. So for example, if you have to pay 12 monthly installments for a one year scheme, you would pay 11 installments and 12th installment will be paid by the jeweler itself.

How to invest in Gold Saving Scheme

You can reach you local jeweler that you trust or you can go to any brand like Tanishq. 

Tanishq offers a similar gold saving scheme called Golden Harvest. You pay say, Rs. 2,000  for 10 months, a total of Rs. 20,000 and get a bonus of Rs. 1,500 added by Tanishq. Scheme maturity period is 13 months.

You have to wait for 3 months to buy the jewelry worth Rs. 21,500 on completing the 13th month.

Tanishq gold harvest

You can also invest in similar schemes with local jewelers and they may offer you better returns but beware of product quality while buying the jewelry.

Best Way To Invest In Gold In India

Gold sovereign bonds are the best way to invest in gold in India if you have a long term investment goal. Because you get the benefit of gold price inflation along with you get 2.5% interest on your investment.

You don’t have to pay tax on Gold sovereign bonds as they are exempted from long term capital gains. However, you will pay tax on the interest earned.

The second option is gold mutual funds, that give you decent returns around 8-10% with a lot of flexibility to invest.

Investment In Gold Or Fixed Deposit

You can’t consider physical gold as an investment because it has zero ROI. However, you can invest in Gold linked investments that offer you better returns. 

On the other hand, fixed deposits give you lesser returns but good for a short term basis.

Gold price fluctuations affect investment returns because the gold price depends on the international market. Fixed deposits, on the other hand, give you a fixed return.

I have compared all the major points to understand both investment types in a better way.

CategoryGoldFixed Deposit
Price FluctuationDepends on the international marketIndependent of market fluctuation
Rate of ReturnGold investments may return 8% – 15%FDs may give you 5% – 8% return
LiquidityDepends
Physical gold easy to liquidate but incur losses. 
Gold investments may some lock-in period
Easy to break but you have to pay penalty charges.
IncomeGold doesn’t earn any interest.

But gold investments yield good returns
Better than physical gold but lesser returns as compared to investments like Gold ETFs or bonds.
Ideal for5-10 years if invested in gold-linked investmentsA short term like 1-2 years

Also read – Best fixed deposits interest rates in India.

Best Alternative To Gold Investment 

An alternative to Gold Investment depends on your risk appetite and time horizon. Since gold-based investments purely depend on the Gold prices that make them highly volatile.

On the other hand, if your time horizon is large, say 10 years, then stocks can give you exponential returns which you can’t get with gold.

Because the average return of gold in 10 years is around 8.8% while indian stocks has given a return of  11% for the same time period, as per World Gold Council (WGC) report.

You can invest either in stocks directly or in equity-based mutual funds.

Final Words 

No doubt gold is the all-time favorite of Indians but due to its own drawbacks, it’s better to have alternate gold options like digital versions of gold which you can materialize whenever you need it. 

If you want to purchase gold for investment purposes, then investing in Gold Bonds, ETFs or gold funds are way better than buying physical gold.

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