Should you invest in gold| North Loop Official Blog
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North Loop
24 Sep 2020

Should you invest in gold

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Since time immemorial, gold ornaments/articles have been adorned by people and flaunted as a status symbol across the globe. In India, gold jewelry outlines festivities and the romp & pomp jamborees, and people exhibit their wealth and prosperity based on the copious amount of jewelry donned.

Statistically, it’s no surprise that India is one of the largest holders of the yellow metal, and Indian households have more gold (more than 25,000 tonnes) than the total amount of gold many countries have. And there’s absolutely no signs of stopping.

Price of Gold-

The price of the precious metal is directly proportional to the demand; as long as the market’s appetite for gold doesn’t reduce, the gold price will not plummet. Over the past 10 years, the price of gold has seen significant multifold growth, attributing to over 3x growth since 2010. A gram of gold costing Rs. 1850 on average in 2010 is worth well over Rs. 5000 as of 2020.
Back in January 2020, the gold price was around Rs. 3800 per gram and in September, the gold price is over Rs. 5100.

Although gold doesn’t assure sure-shot high returns over short durations, investments in gold offer stable returns over the long run.

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Gold as an investment-

Gold is one of the most bankable modes of investment as gold is relatively immune to inflation, has high liquidity, and sees stable growth over a long period of time. Since gold is not market-linked, people tend to invest in gold during times such as economic recessions, pandemics, etc., where other investment instruments like stocks and mutual funds see a decline in growth.

Talking about gold as an investment sure does peak the investors’ curiosities, leading them to the question ‘how to buy gold/ how to invest in gold?’. Given below are the various modes through which one can shortlist gold as an investment instrument in their portfolio.

How to buy gold/How to invest in gold-

In India, there are several ways to profit off of gold price-linked rallies, some being conventional and some being modern, government-backed schemes.

Some traditional ways of investing in gold include purchasing jewelry, gold coins, gold bars, gold articles, etc. Although physical gold offers high liquidity, a lot of charges like melting charges, making charges, etc. are incurred when purchasing physical gold. Moreover, the high risk of theft/burglary also prevails in the case of physical gold.

Some of the more contemporary ways of investing in gold are gold exchange-traded funds (ETFs), gold mutual funds(fund of funds), and sovereign gold bonds (SGBs).

Gold exchange-traded funds (EFTs) are a type of investment instrument where-in one is not required to purchase physical gold and instead, EFTs exist in a paper format (Demat account). ETFs are traded just like shares on the market and it’s price changes multiple times throughout the day. Gold EFTs offer stable returns, convenience as the instrument exists in the Demat account, have high liquidity and hedge against inflation and fluctuation risks.

One can invest in gold exchange-traded funds across major companies in India such as IDBI Bank, State Bank of India (SBI), HDFC Bank, Nippon Gold ETF, UTI gold ETF, etc.

Gold Mutual Funds- These are the type of mutual funds in which the broker invests across gold EFTs, physical gold, and companies that mine gold; depending on the risk appetite of the investor. Gold funds need not have to be stored as they don’t exist in physical form. Gold funds have an advantage over Gold exchange-traded funds as one can invest at regular intervals, in the form of Systematic Investment Plans (SIPs).

One can invest in gold funds across major national banks in India such as Axis Bank, State Bank of India (SBI), HDFC Bank, Kotak Mahindra Bank, etc.

Sovereign Gold Bond scheme (SGBs)- Sovereign Gold Bonds are the type of investment instruments issued by the government, wherein the availability of bonds for investment purposes is available only when the government opens up a week-long window and not whenever an investor wishes to invest. However, these bonds carry a big advantage- investors are assured with the current market value of gold upon maturity plus an additional guaranteed interest of 2.5% per annum. The maximum limit of subscription is 4KG for individuals. SGBs have a tenure of 8 years, although the lock-in period can be terminated at the end of the 5th year itself.

Sovereign gold bonds 2020- The Reserve Bank of India has released a series of 6 Sovereign gold bond windows to investors. The Sovereign Gold Bonds 2020 windows are as follows-

Sovereign Gold Bonds 2020 Schedule
SGB Sl No.SGB WIndowSGB Bonds Issue Date
Sovereign gold bonds- Series 1April 20-24, 2020April 28, 2020
Sovereign gold bonds- Series 2May 11-15, 2020May 19, 2020
Sovereign gold bonds- Series 3June 8-12, 2020June 16, 2020
Sovereign gold bonds- Series 4July 6-10, 2020July 14, 2020
Sovereign gold bonds- Series 5August 3-7, 2020Aug 11, 2020
Sovereign gold bonds- Series 6August 31- September 4, 2020Sep 08, 2020

Digital Gold- Digital gold is an advanced way of purchasing gold with just a minimum requirement of a smartphone and internet connection. You can now purchase gold coins, gold bricks, etc. through applications like PayTM, GoldRush, Me-Gold, etc. One of the biggest advantages is that one can invest in digital gold starting with just Re.1.
Digital gold has yielded close to 40% returns over the past year and offers convenience to investors to get the gold physically delivered after the investment period. However, relevant charges would apply in that case.

Investors looking to invest in gold need to be aware that investments in gold-related instruments fetch lesser returns than other investment instruments. However, the aforementioned instruments help hedge against risks attributed to inflation and market fluctuations and they also offer high liquidity. During the time of economic slowdowns and pandemics, like the COVID-19 pandemic, when other investments are lack-lustrous, gold-based investment instruments offer enticing options for investors looking for returns over the long run. We advise our readers to invest in Sovereign gold bond schemes as they are government-backed, secure and assure yearly returns of 2.5% in addition to the market price as on the maturity date.

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This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended be advice. You must obtain professional advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax, investment or other professional advice from North Loop or its affiliates. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date. All opinions expressed do not reflect the views of North Loop nor are endorsed by North Loop.