Investing in gold benefits from various sources of demand namely as an investment, a reserve asset class, an adornment and a technology component. A gold investment is greatly liquid, gold is not a country’s liability, gold carries no credit risk, and is scarce, historically gold as an investment class has preserved value over many centuries. Institutional fund investors have embraced substitutes to traditional stocks and bonds in search for diversification, alternate asset classes, and higher risk adjusted returns. Gold fund investments have been beneficiaries of this shift in mind-set. Investing in gold is gradually being accepted as a conventional investment since global investment demand has grown substantially over the last two decades.
Investing in gold is a strong complement to stocks, bonds and other asset portfolios. Gold is a store of wealth and a hedge against stock market risk, currency devaluation and inflation; gold has historically enhanced stock market portfolios risk adjusted returns, produced positive returns, and provided liquidity to meet redemptions in times of stock market stress. This gold investment trend is likely to stay, reflecting pushy political agendas and economic uncertainty, low interest rates and economic worries surrounding stock and bond markets.
So how does the mutual fund scheme investor invest in gold is the Golden question that we hope to answer.
Traditionally, gold was bought as physical gold in the form of coins, bullions, artefacts, or jewellery. Coins, bullions, artefacts, or jewellery are some of the physical gold forms traded in India. Jewellery can be bought from any reputable jeweller while banks now days’ sell gold coins and bars. The single most important thing to check is the product’s certification, indicating quality. When buying coins and bars, make certain the product is in a tamper-proof package that prevents damage during transit. Investors use these gold forms for three primary purposes: family gifts, corporate gifts or personal savings. Demand for gold tends to be seasonal, peaks during festivals and the wedding season in India.
Digital gold is a modern gold investment option, and can be bought online via Qfund’s partners or many other secure mobile or website service providers which provide a platform for leading refineries and gold trading companies such as MMTC, etc. to list and sell gold digitally. Once you invest in digital gold, the equivalent amount of physical gold is securely deposited under the investors name in a vault and is insured. When you want to take delivery or exchange your gold, it is removed from this vault and delivered to your doorstep in whichever form you choose. Digital gold offers flexible investment amounts which are transparent with real time pricing and assured 99.99% quality. These digital gold investments are stored securely, are easy to track and can be converted into coins, bars and cash at any time providing the necessary liquidity.
Mutual fund investors who have begun investing in gold as an investment; can purchase gold exchange traded funds, gold mutual funds, sovereign gold bond schemes. Investing in gold ETFs listed on stock markets like the National stock exchange in mumbai or Bombay stock exchange are similar to buying an equal sum of physical gold but without the annoyances of having to store the physical gold. Hence, there is a lesser risk of theft as the gold is stored in demat form. Gold mutual funds are a type of mutual funds scheme that invest directly in gold both in India and international stock markets. A few of these gold mutual funds also invest in the shares of companies that mine gold and gold distribution companies. Other gold funds also invest in gold ETfs and are called gold Fund of Funds.
Sovereign gold bonds are the safest way for a mutual fund scheme investors to invest in gold in digital form as they are issued by the reserve bank of India on behalf of the Government of India with an assured interest of 2.50% per annum. Sovereign gold bonds are in units of grams of gold with a basic unit of 1 gram. The maximum investment an investor can make is 4 kg. These bonds have a duration of eight years with an exit option from the fifth year onwards. Sovereign gold bonds are a stress free way of gold investing as you have the ownership of gold without any physical possession.
Investing in gold has pros and cons associated with it. If holding physical gold is not to your liking then, you can opt for other choices such as gold ETFs, gold funds or Sovereign gold bonds (SGBs). If you are investing in gold for the long term your optimal choice is to opt for Sovereign gold bonds; Gold ETFs or gold mutual funds are ideal for investors who require liquidity and hedging.
The information, analysis and opinions expressed herein are for educational purposes only and are not intended to provide specific advice or recommendations for types of mutual fund schemes. This material is not an offer, solicitation or recommendation to purchase any financial products or services. Always remember that all investments, including gold investments carry some level of risk, including the potential loss of principal invested.