The Hindu Business Line : The glittering investment options

For generations, jewellery has been the only way to invest in gold for retail investors, despite the high carrying costs. But now there are coins, bars and gold futures. Gold Exchange Traded Funds too are expected to hit the market soon.

Coins for passive investor

Today, gold coins are gaining popularity due to easy liquidity and the ability to generate higher return on investment than jewellery. Making-charges may shave off 15-20 per cent of the returns on gold if held in the form of jewellery.

Many banks have diversified into retailing gold and offer imported Swiss Assay Certified 99.99 per cent pure gold in various denominations, from four grams to one kilogram. However, the rates are 5-10 per cent higher than those charged by jewellers. Banks claim the higher rates are justified due to guaranteed purity. But jewellers argue that they can offer coins at lower rates and of guarantee purity too, as the coins and bars are Hallmarked.

As you can sell your coins back only to a jeweller, who will buy it at a discount, and not to a banker, the premium charged by banks may be stiff. If you are a long-term investor in gold and do not want to worry about everyday price movements, then coins or bars could be the best way to invest.

Those who do not want to hold physical gold for security reasons and want to minimise the cost of holding gold can try gold demat accounts offered by Multi Commodity Exchange and National Commodity and Derivatives Exchange.

Demat accounts for HNIs

For high net worth individuals this may prove to be cost-effective, as gold is available at exchange-quoted prices as opposed to a bank, where you may end up paying a premium of almost 10 per cent. However, one must bear Value Added Tax, service tax and warehousing charges on delivery of these contracts. These charges are marginal, compared to those incurred on holding physical gold.

Futures for traders

One with a keen eye for price movements and willing to take risks can consider exposure to gold futures. You can either make a killing or lose your shirt by investing in futures as your position is leveraged. You only pay a margin money of 4-5 per cent of the value of a unit of gold to take a position.

A case for ETFs

SEBI's nod for gold Exchange Traded Funds has spurred interest in the mutual funds industry. Benchmark Mutual Fund is expected to launch its gold product in a few months. According to the Gold Outlook report put out by Altos Advisory Services, 16 such funds are likely to be launched this year in India.

ETFs may be a big step forward in channelling investment demand for gold in India. ETFs are cost-effective, highly liquid and flexible, and allow you to invest small amounts. Gold ETFs mimic international gold prices or a specific index.

Transaction costs could be as low as 0.5-1.5 per cent, compared to a minimum of about five per cent for holding bars or coins.

These units are traded as normal shares on the exchanges and allow you the flexibility to hold on for the long term or trade in the short term, just like equity.

What is more, you need not shell out huge sums of money. Internationally, one unit is one-tenth of a troy ounce. In India, one unit may be equivalent to one gram of gold. You will be able to invest as little as Rs 1,000 in gold through ETFs.

More Stories on : Insight | Investments | Gold & Silver

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page