It has been a tradition among Indians to invest in gold for financial security and sentimental reasons. Important events in Indian households are marked with the purchase of the precious metal. It is accumulated to meet shortcomings that could arise in an uncertain future.
The age-old tradition to accumulate gold for the future is also a great way to diversify one's investment portfolio. The yellow metal is a hedge against inflation and a safe haven amid economic uncertainties.
This year, due to the sudden outbreak of COVID-19, gold prices in India as well as abroad have soared over 20%. Before any positive news on the vaccine trials, more and more investors parked their funds in the metal and out of risky assets, causing gold prices to hit new all-time highs.
However, in 2020, Indians opted for the metal as an investment, looking beyond festive or matrimonial purchases.
Between July and September this year, demand for gold jewellery fell 48% year-on-year, to 52.8 tonnes, from around 101.6 tonnes, a year earlier, as per the World Gold Council. However, demand for the yellow metal as an investment, rose 52% to 33.8 tonnes, on a year-on-year basis, a clear indication that Indians opted for gold ETFs over jewellery.
It is also during the same period, that is in the month of August, that the metal hit a lifetime high of Rs 56,191 per 10 grams. In comparison, prices hovered near Rs 38,000 per 10 grams in November 2019.
As per data from the Association of Mutual Funds in India (AMFI), the number of folios in gold ETFs, rose from 3.77 lakh in October 2019, to 7.82 lakh in October 2020.
This is because investing has been simplified for Indian investors, thanks to improved adoption of digital modes to invest and transfer funds. One can start investing in gold for as less as one rupee armed with a smartphone, internet connectivity and a bank account with internet banking access.
Major benefits of investing in gold regularly than lumpsum
- You can invest with little money, which is helpful considering the high prices.
- It will help average out the costs. You must be aware that gold prices fluctuate based on changes in the international markets and exchange rate of the rupee. Overtime, buying at different rates will help average out the highs and lows in the rates throughout the year.
- None of the below methods to invest in gold require you to worry about the storage of the metal, making it safe for ownership. It also eliminates expenses incurred on insurance, wastage, making charges etc that arise from the physical purchase of precious metals.
Here are 4 ways to invest in gold with little money:
1. Gold ETFs
Internationally, physically-backed gold exchange-traded funds (ETFs), exchange-traded commodities (ETCs) and similar funds account for approximately one-third of investment gold demand.
Gold-backed ETFs are regulated financial products.
As the name suggests, these are listed on the exchanges and can be purchased from your trading account used to purchase stocks. These are sold as units (like shares) where each unit represents a specific quantity of gold and the price of the unit reflects the price of the quantity of the unit. Unlike gold derivative instruments, most of these ETFs are fully backed by physical gold.
Investors can track the changes in prices on the exchange and purchase or sell instantly using a trading account.
The three major benefits of gold ETFs are:
- You can purchase as little as one unit of the ETF.
- You do not need to make arrangements for storing the metal.
- You can purchase the metal at the best rates by tracking the price movement and buying instantly online.
Gold ETFs combine the flexibility and ease of stock-market trading with the benefits of physical gold ownership.
These are bonds issued by the Government of India and allows subscribers to buy gold in the Demat form.
These bonds also earn an interest of 2.5% and can be purchased when RBI opens the issue for subscription or from the open market.
These can be purchased online from commercial banks and physically at select post offices. The already listed bonds can be purchased at the stock exchanges.
A resident Indian can buy a minimum of one gram and a maximum of 500 gram in a fiscal year when participating in the scheme.
3. Accumulating gold digitally using payment apps
Popular payment apps like Google Pay, Paytm, PhonePe and MobiKwik allow users to purchase gold 24 carat gold of 99.9% purity in quantities as little as 1 gram at current market rates. Some apps even allow you the option to get the metal home delivered.
These apps have a tie-up with bullion refiner MMTC-PAMP India to allow users to buy as well as sell the metal on these apps.
On Google Pay, users can purchase gold for as little as one rupee at the latest price and the quantity will be stored on their behalf by MMTC-PAMP.
4. Gold Mutual Funds
These are open-ended funds that invest in gold ETFs. The plus point is that it allows you the advantage of gold price fluctuations and professional fund managers to make a profit.
There are expert fund managers who will closely watch the market fluctuations of gold ETFs and decide the move to make maximum returns for its investors.
Mutual funds also allow Indian investors to invest in gold mining companies listed abroad.
The article is purely informational and is not a solicitation to buy, sell in securities mentioned in the article. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and the author do not accept culpability for losses and/or damages arising based on information in this article.
About the author
Olga Robert is an M.Com graduate covering equity markets and personal finance for nearly three years. Her interests include tax planning, equities, DIY personal finance management and government schemes.