Deciding how to own gold is just as important as deciding when to buy it. Many investors begin their research by checking the gold price today and then discover that the metal can be held in several very different forms. Anyone in eastern India who looks up the gold rate today Kolkata will soon notice that jewellers, banks, and online platforms all offer their own versions. Each route has strengths, costs, and risks, and the right choice depends on your purpose, your comfort with technology, and how long you plan to stay invested.
Physical Jewellery and Coins
Jewellery is the most common form, which appeals to a majority and serves both emotional and financial purposes. This can be worn and passed on to the next generations, and sold when required. However, making charges are paid upfront and are rarely recovered at the time of resale, and space and safety are key concerns.
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Coins and bars come with lower making charges, and can be conveniently stored as they arrive in small sizes that are easy to value at the time of sale. Buy from banks, jewellers or authorised refiners, and retain the original packaging and certificate of purity. Tarnished coins that are sealed in tamper-proof covering see greater demand at the time of sale.
Physical holdings require a bit of work to ensure they are secured and insured at the right value, and purity is checked at every transaction. A locker at the bank is a safe place to store gold, but comes with recurring rental charges, and is only accessible during bank hours.
Exchange Traded Funds
With Gold Exchange Traded Funds (ETFs) one can purchase units that trade on the principles of the metal value and act similarly to stocks on the exchange. DEMAT and trading account are necessary, and while even 1 unit (around Rs 5,000) can be bought at a time, there is no need to get into the details of purity and weight.
The usual costs involved are an annual expense ratio for the fund and brokerage on transactions, which are much lower than the making charges applicable to ornaments. The liquidity is good, and while units can only be traded when the markets are open, a quick sale to raise money is possible.
Some may prefer gold mutual funds that have exposure to ETFs as underlying assets. These funds allow for systematic investing every month, in a manner similar to a salary saving scheme that suits the working individual. However, the additional layer of expense ratio makes it costlier than ETFs, which hold the same exposure. The key constraint is that one cannot wear or feel the gold, and the taxation norms surrounding such transactions tend to get complicated as well, so understanding the applicable rules or consulting a tax expert is important before getting started.
Digital Gold Platforms
Digital gold has become increasingly popular with the rise of apps and platforms that allow the purchase of gold in small amounts, with the assurance that it is held in vaults by a trusted entity. The appeal lies in the convenience, and the fact that it is easily accessible in today’s mobile-first world.
However, one must understand that digital gold has limited regulation, and the onus of due diligence falls on the buyer to understand the credibility of the platform, the manner in which gold is held (with proper auditing), and the spread (difference between buying and selling rates). Costs and taxes may erode value, especially if small amounts have been bought frequently.
Digital gold can be a safe way to begin investing, or to accumulate enough to move to a bigger format, but it must be seen as a utility. The approach of putting all one’s eggs in one basket is not recommended, and a mix of multiple holding methods is important.
Matching Choice to Goals
One size does not fit all when it comes to gold investing, and one must look at the goal when choosing the right method. Those looking to buy jewellery, say for a wedding, would have to look at buying gold in this format, and making wise choices to limit additional costs. However, those aiming for long-term wealth protection would have to look at ETFs or coins which entail lower expenses.
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The approach may also depend on one’s personality. The anxious buyer may prefer paper gold since it is immune to theft, while the traditional buyer may prefer to see the gold in the locker. There is nothing wrong with either approach, except for the fact that they must be aware of the additional expenses that come with physical gold.
A balanced approach may be to have a small portion of gold in jewellery, and hold a small allocation in coins that can be used as an emergency. At the same time one may have a monthly allocation towards gold ETFs. Overall, diversification across multiple forms is the best risk management strategy.
It is important to note that gold should be a small part of a larger wealth creation plan. Shares, deposits, and other instruments are needed to create a corpus as well as supplement retirement savings (pension funds or NPS) to build retirement corpus. Gold serves as a hedge and diversifier, and should not outweigh the importance of the other instruments. It is good to make an annual review, and rebalancing as necessary. Keeping records clean and easily accessible is useful as well so that a nominee or legal heir has a clear view of the holdings. The best approach always depends on one’s life, financial standing, and patience, and one must educate and take their time while making their choice.