Gold in recent time has scaled to levels beyond Rs. 50000 per 10 gm and any sharp rally triggers investors return who want to tap on gains from any future probable appreciation in the asset. Though the strategy otherwise should be to buy on dips and sell when the prices rise. But in general things are a lot different than advocated.
So, even though a short term correction cannot be ruled out and prospects of gold seem promising given a lot of favorable factors:
1. Economic downturn with no certain signs of revival any time soon
2. Geopolitical risk due to US-China trade tensions simmering
3. Interest rate kept low
4. More of stimulus to combat the ill effects of the pandemic
a. Current volatility suggest to take SIP route
Gold prices are witnessing bouts of volatility due to a host of factors and at a time when no one can rightly say whether the low or high of the yellow metal has been reached. We can invest in the metal through the SIP route to take advantage of rupee cost averaging.
For investing via the Systematic Investment Plan route where investor should park a pre-planned amount month on month, there are two options
1. Gold Fund
2. Digital Gold that is sold in partnership with MMTC-PAMP via major wallets including the likes of Paytm, Gpay, Phone pe among others.
There is storage and insurance cost that is borne as part of the investment
Cost of 1% is charged by the fund house
And a maximum investment limit is set for a monthly investment at Rs. 15000.
b. Gold ETFs:
This is another investment where the physical gold of equivalent value is held as the underlying asset. The other advantage is there is no exit load as well as lower management fee in case of Gold ETFs.
c. Sovereign Gold Bonds or SGBs:
These are the best form of investment in gold where the underlying is 1 unit or 1gm of gold. The investment fetches 2.5% interest per annum payable semi-annually. On maturity, the capital gains if any are tax free. These have sovereign guarantee and are issued by the RBI.
What Investors Should Do?
As uncertain times have even led analyst and experts to suggest a higher allocation in gold of more than 10%, what best an investor can do while making investment into gold for higher returns is that invest in gold via SIP investment and withdraw time to time from such investment and then park in sovereign gold bonds (SGBs). Also, SGBs can be bought from the stock exchanges where they are available at a better rate.