Personal Finance

Save Smart: 3 ways to bond with gold

Rajalakshmi Nirmal | Updated on May 06, 2019

This Akshaya Trithiya, buy gold using digital platforms, sovereign bonds and ETFs

Traditionally, families saved in gold by buying jewellery. But with high making charges, investing in jewellery is not the smart thing to do. Making charges, together with the price of the precious stones in the gold jewellery, eat into returns. Aside from all this, gold in the physical form is an illiquid investment — jewellers don’t pay cash for old jewellery. And, if you keep the jewellery in a bank locker, there are rental charges to deal with. Here are three best ways to buy gold this Akshaya Trithiya

Buying from MMTC-PAMP

Many players today offer a digital platform to buy gold directly from MMTC-PAMP — a JV between MMTC (a Government of India undertaking) and PAMP (a global refiner in gold). Motilal Oswal’s Me-Gold is one such digital platform. You can buy gold for as low as ₹1,000 or 0.3 gm. Orders for buy/sell can be placed at any time of the day and all seven days of the week.

When you place a ‘buy’ order through the app, MMTC-PAMP purchases an equivalent value of hallmarked gold in your name and stores it in its vault. When you decide to exit, you can sell the gold back to MMTC-PAMP through a ‘sell’ order in Me-Gold. The refiner will take it back and credit the money to the account with Motilal Oswal. You can also redeem gold in physical form in multiples of 1 gm by paying extra for making charge, and it will be delivered at your registered address.

Payments apps — Paytm, PhonePe, MobiKwik and Google Pay — also offer a digital platform to buy gold from MMTC-PAMP and orders can be for as low as ₹1.

However, there are a few restrictions. One, the maximum period for which you can store gold at MMTC-PAMP is only five years. Also, every platform has a frequency to keep the account active — in case of Me-Gold, if there is no buy/sell/redemption order for 18 months, it will be deemed inactive and the money will be refunded by liquidating the gold at the then prevailing price. And there are transaction charges on these digital platforms.

Sovereign gold bond

For those eyeing returns on investment in gold, sovereign gold bonds are the best option today. You get interest at 2.5 per cent per annum on the face value of the bond.

This means that when the price of the yellow metal goes up, you get the twin benefits of price gain and interest, and when the prices fall, you are not impacted as much as those who invested in physical gold, as you will get the interest on the bond.

These bonds are issued by the Reserve Bank of India. All except NRIs can invest.

Investment in these bonds can be made through cash (up to ₹20,000), cheque or demand draft. The bonds are issued in denominations of one gm and in multiples thereof.

Maximum investment in a year is capped at 4 kg for individuals.

The RBI fixes the price of the bond. You can buy these bonds from banks, the Stock Holding Corporation of India, designated post offices, the National Stock Exchange of India and the Bombay Stock Exchange.

The investment tenure of the sovereign gold bonds is eight years. Premature exit is allowed from the end of the fifth year. Investors who want to exit early can sell the bond in the secondary market.

Gold ETFs

You can also invest in gold through gold exchange traded funds (ETFs). These are units of mutual fund schemes.

You can buy/sell these units through a share broker, provided you have demat and trading accounts. From the time these ETFs list on the bourses, you can sell/buy at the market price.

These ETFs track the domestic price of gold. However, based on the demand/supply of these units in the market, they can trade at discount/premium to the market price or NAV of the fund.

Also note that, though the cost of investment in gold ETFs is cheaper than investing in the physical form, you will need to pay fund management charge and service charge for the broker.

If you are opening a demat account specifically for investing in gold ETFs, the demat account charges will also have to be accounted for in your total cost. You also need to be aware of the high tracking error of these funds because of their cash holdings. Thus, when you sell, you may not be able to exit close to the market price of gold.

Published on May 06, 2019

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