Five Different ways to Invest in Gold

Investment

oi-Monika Nihalani

By Monika Nihalani

Published: Thursday, June 30, 2011, 13:50 [IST]

Gold is the best performing asset in recent times. It is not surprising that gold prices are setting new highs every other day. Besides, one year return from gold stand at 19.52 %. as on June 1, 2011. With the current rising trend in the value of Gold, it is a prudent idea to give a piece of your investment to gold.

So, if you are planning to invest in Gold, there are five different ways to invest in. However, it entirely depend on one's purpose and requirement.

Gold Jewellery:
India is the largest consumer of Gold Jewellery. Buying a gold jewellery is a tradition for many Indians, which is going on through generations. Research shows that over 16,000 tons of gold is there in Indian households predominantly in the form of Jewellery.

If your purpose to buy Gold is consumption and not investment, you can buy Gold Jewellery. But if your purpose is investment, then it may not turn out to be a wise decision because buying of gold jewellery consists of labour and design charges. Also gold is mixed with other precious metal when jewellery is designed. 24-carat Gold is considered as a purest gold, and jewelleries are usually made up of 22-carat rather than 24-carat.

While selling gold jewellery, you may not get the actual value unless gold prices have moved up.

Gold Bars and Coins:
The best way to invest in physical gold is to buy gold bars and coins as gold bars and coins hold an intrinsic value. This is the cheapest way to spend your money knowing that you can easily sell it at a profit in future. Gold bars can be bought in denominations of 10 gms, 20 gms, etc. and gold bars are available in denominations of 1gm, 2 gms, 5 gms, 10 gms, etc.

You can buy from the local dealers or sellers with good reputation because the doubt about the purity remains. The best way is to buy from RBI authorised banks or post office. It may cost you more because Gold bars/coins sold by banks are marked up by 10-15% above the market price, but you can always count on the quality part.

Gold Futures:
Futures trading in Gold and Silver has been implemented since 2003. You can also take exposure in gold through commodity exchanges like MCX or NCDEX, where you can buy or sell gold futures. The futures market is too complex for majority of investors and is highly risky in nature, where big fortunes could be made and many can even lost in an instant.

All sort of investors can invest in Gold Futures and for catering the needs of small investor, the Multi Commodity Exchange (MCX) has specially launched gold mini future contracts having minimum size of 8 gms in May 2008.

It has been observed, mostly hedgers and speculators invest in commodity futures market as it is highly leveraged market and hence carry more risks.

Gold certificates/Deposit Schemes:
Another way to invest in gold is to invest through gold certificates. The gold certificates are proof in the form of a certificate as a proof of your holding gold. The scheme allows individuals and institutions to deposit their gold with the bank for a specified period and receive a 'Gold Certificate' or passbook as proof of deposit.

The bank will pay interest of 3-4% per annum as on prevailing rates on the deposits. They are one of the safest way of investment which allow you to enjoy ownership and safety and convenience of storage by bank. However, there is restriction on quantity, you can generally keep 200 gms, 300 gms, etc. to avail this facility.

Gold Exchange Traded Funds (ETF):
Of late, it has been observed, Gold Exchange Traded Funds are attracting large number of investors and gaining lot of popularity. These are a type of mutual fund that invest the money collected from the investors on gold bullion. This is another safest way to invest in gold.

Buying ETF is like buying shares in a fund that is based on the market price of gold. You will get your holdings in terms of units and each unit represents one gram of gold. You need to have a trading account with a brokerage house for investing in Gold ETF.

Some of the Gold ETFs available in India are Kotak Gold ETF, UTI Gold ETF, Reliance Gold ETF, Quantum Gold ETF, etc.

(If you want to know How to invest in Gold ETFs, click here)

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