Gold is one of the most preferred investments in India. High liquidity and inflation-beating capacity are its strong selling points, not to mention charm, prestige, and so on. Gold prices shoot up when the markets face turbulence. Though there are phases when markets witness a fall in gold prices, it won’t last for long, and always makes a strong comeback.

1. Why Should You Invest in Gold?
Safety, liquidity, and returns are the three criteria most risk-averse investors look for before investing. While gold meets the first two criteria without any hiccups, it doesn’t perform poorly at the last one either. Here is why you should invest in gold:

a. Investing in gold is worthwhile because it is an inflation-beating investment. Over time, the return on gold investment has been in line with the rate of inflation.

b. Gold has an inverse relation with equity investments. For example, if the equity markets start going down, gold would perform well. Considering gold as an investment option in your investment portfolio will be a buffer to the overall volatility of your portfolio.


2. How to Invest in Gold?
The ‘golden question’ here is – how does one invest in gold? Traditionally, it was by buying physical gold in the form of coins, bullions, artefacts, or jewellery. However, there are newer forms of gold investments nowadays, such as gold ETFs (exchange-traded funds) and gold mutual funds.

Gold ETFs are similar to buying an equivalent sum of physical gold but without the hassles of having to store the physical gold. Hence, there is no risk of theft/burglary as the gold is stored in Demat (paper) form. Gold funds involve investing in gold mining companies.

Physical gold
One can invest in physical gold by purchasing gold coins or gold bars from jewellers, banks or online stores (issued by MMTC), NBFCs etc. Gold coins are usually of standard denomination like 5 and 10 gm, while bars are of 20 gm. These have a 24 karat purity and carry a hallmark of purity in compliance with BIS standards. This is a traditional approach to investing in gold. Investors usually buy gold on auspicious days of the year thereby collecting gold periodically over time. This link provides information about purchase of gold coins: https://www.indiangoldcoin.com/

Sovereign Gold Bonds (SGB)
The government of India issues SGBs at different points in time. Whenever the issue is made, investors can subscribe to SGBs. Investors can invest in denominations of 1 gm and are allotted gold bond certificates on allotment. At the time of redemption, they receive the value of gold at the rate of simple average closing price for the past three business days. The investors receive a fixed predetermined rate of interest during the term of the bond. Whenever an SGB issue is opened, investors can apply for it at bank branches, post offices, SCHIL or authorised stock exchanges directly or through their agents.

Gold ETFs
Another way to invest in gold is through gold Exchange Traded Funds (ETFs). Units of gold ETFs are listed on the stock exchange and one can buy units from there. These are valued in line with the price of gold. Investors need to have a demat account and a trading account to be able to invest in gold ETFs.


3. What are Gold Funds?
By investing in gold funds, you invest in stocks of companies operating in gold and gold-related activities. Gold mutual funds include silver, platinum, and other metals in their investment basket. A mutual fund manager on behalf of an asset management company manages the gold fund, unlike gold ETFs. They make use of the fundamental trading analysis to buy and sell stocks to maximise returns for investors. Returns from gold funds depend on market conditions to an extent.

Gold mutual funds eliminate the risk of returns considerably by distributing investments over a wide range of investment options. In other words, mutual funds work on the principle of diversifying, i.e. not putting all eggs in one basket. Investors need to weigh their risk appetite and goals before choosing such a mutual fund.

Some of the Top Gold Funds in India
Based on the market scenario, some of the top gold funds that you can consider investing in are:

  • Axis Gold Fund
  • Aditya Birla Sun Life Gold Fund
  • Canara Robeco Gold Savings Fund
  • HDFC Gold Fund
  • ICICI Pru Regular Gold Savings Fund
4.What Documents do you need to Invest in Gold?
More than Rs. 2 lakhs of investment in physical gold demands for the PAN Card, whereas in ETFs, you shall have to open an account with a brokerage firm followed by a Demat account with the same firm. For investing in SGBs (Sovereign Gold Bonds), KYC required are the documents required to buy Physical gold (Aadhar, PAN, Voter ID or Passport).

5.Why Should you Prefer Investing in Gold?
For a conventional investor, the most important criterion is safety, liquidity and profitable returns. You can expect to meet all these criteria while investing in gold. However, some investors consider gold returns as extremely volatile but gold proves to be a safe haven in times of uncertainty for many investors. Let’s contemplate on some points that prove gold investment can be a wise decision:

No matter what the rate of inflation is, returns on gold investment have always proved to be in line with it. In a nutshell, one can consider it is an inflation-beating investment

Another major factor which calls for gold investment is the liquidity; it provides excellent liquidity to the investors.

The Bottom Line
Every investment has benefits and drawbacks associated with it. If you are not in favor of holding physical gold, you can go for other alternatives ETFs, gold funds or SGBs. Although gold is not a passive investment like stocks and bonds that provide you with a regular income in the form of interests and dividends, it can provide you excellent liquidity and also beat inflation. Apparently, the advantages of investing in gold usually outperform the disadvantages. In short, for all those investors who don’t need the funds in the short term can opt for Sovereign gold bonds and for investors prioritize liquidity, can opt for gold ETFs and funds.