4 Gold Instruments Available to Investors in India
By Anupama Deshpande | Jan 9, 2019

Yellow Metal i.e. Gold has always been centre of attraction for Indian Investors. People are found emotionally attached when it comes to gold investment. Gold is seen as the right commodity for investment which beats inflation. Over a long period of time, the rate of return generated through gold investment has been either more or at least in line with the rate of inflation.

Gold has inverse relationship with the equity markets i.e. when equity markets go down, gold's performance betters and vice versa. As an example in the year 2007, when the equity markets had started performing poorly while the gold has performed well during that duration and generated good returns for the investors.

In past, the tradition for gold investment has always been to buy physical gold, in the form of jewellery, coins, bars, bullions, etc. However, in present time, there are many instruments available for the investors.

If you are planning to start investing in gold, it is desired for you to know a few unique characteristics of different forms of gold investment.

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Detailed below are the 4 Gold Instruments available to investors in India:

This is the main and the most popular form of investment in gold which majority of the Indians prefer to opt for. People in India like to invest in gold in its pure physical form such as gold jewellery, gold coins and gold bars. They prefer to invest in gold particularly on any occasion like Dhanteras, Dashera, Akshay Tritiya or on birthday.

It is best suited alternative investment avenue for conventional investors.

Gold Mutual Funds is a mutual fund scheme offered by various mutual funds. It is usually an open-ended scheme in which you can invest on any business day. Gold Fund involves making an investment in companies engaged in gold mining instead of in physical gold. Hence, changes in the price of gold do not affect gold funds directly. Some of the gold funds also include silver, platinum and other metals in their investment basket and not the gold only.

The benefit of such type of investment is that the investors can invest any amount of money like even Rs 500 any time. They can invest in gold MF very easily i.e. offline as well as online. There are many mutual funds which are offering gold mutual fund schemes.

It is one of the secured forms of investment as it does not have the risk of theft that is associated with keeping physical gold. Further, one another benefit is that the gold funds are professionally managed by fund managers of mutual funds.

Investors can either make a lump sum investment or they can invest through SIP (Systematic Investment Plan). There is no requirement for investors to have a demat account to invest in gold fund.

It is best suited alternative for those investors who expect comparatively higher returns by taking calculated risk and who do not have enough time and skill set to trade in gold.

Gold ETF is also a mutual fund scheme which is an electronic form of buying gold. It is similar to buying an equivalent sum of physical gold. It is traded on stock exchanges of India such as National Stock Exchange of India (NSE) and Bombay Stock Exchange Ltd (BSE). It tracks the physical gold price. It has to be kept in your demat account in dematerialized form.

One gold ETF unit is equal to 1 gram of gold and the main advantage is that it is backed by physical gold of very high purity but if you want to redeem gold ETF then you will get cash only and not the physical gold.

Investing in Gold ETF is very convenient for investors as it is traded through a broker who acts as an intermediary. The units are kept in demat form so it is mandatory to have a demat account if you want to invest in gold ETF. These funds were first launched in 2003.

It is best suited alternative for investors who have the required time and skill to trade in gold.

Sovereign Gold Bond (SGB) is one of the substitutes of physical gold. Sovereign Gold Bond (SGB) is issued by the Reserve Bank of India (RBI) on behalf of Government. It is a hassle-free investment bearing attractive interest rate with no risk and no cost of storage. Sovereign Gold Bond Scheme was launched by Govt in November 2015, under Gold Monetisation Scheme. It offers convenience of investing online.

Sovereign Gold Bond (SGB) is a government security gold bond which is denominated in gram(s) of gold with a basic unit of 1 gram. When SGBs are issued then the investors are required to invest in cash at the issue price of the bond.

Minimum and maximum investment limits are associated with Sovereign Gold Bond (SGB). Minimum investment in sovereign gold bond scheme is 1 gram of gold and the maximum limit of subscription of 4 kg for individuals, 4 kg for Hindu Undivided Family (HUF) and 20 kg for trusts and similar entities.

Sovereign Gold Bond (SGB) are sold through offices or branches of Nationalised Banks, Scheduled Private Banks, Scheduled Foreign Banks, designated Post Offices, Stock Holding Corporation of India Ltd. (SHCIL) and the authorised stock exchanges either directly or through their agents. The investors can also buy it online and can also get some discount on buying through digital mode.

The bonds will be redeemed in cash on maturity date. The redemption price will be linked to the prevailing price of gold on maturity. It is exempt from capital gains tax, if held till maturity. Holding certificate is issued to the investors of SGB towards investment in Sovereign Gold Bond.

It is best suited alternative for those who want to invest in gold, but do not want the hassle of paying making charges or storing it.