TomorrowMakers

India is one of the largest markets for gold in the world. So, as an investor, how would you prefer to invest in silver or gold? Do you still buy jewellery only or have you moved to any of the smarter forms of gold investment? Read on to know more about your options for investing in silver or gold a little ahead of the upcoming festive season.

How to invest in gold or silver ahead of the festive season

Dhanteras and Dussehra are known to be auspicious times to buy gold and silver jewellery. However, there has been a paradigm shift among the investors who have identified that jewellery is not the best form of investment in gold and silver. Here is a quick look at some other means of investing in these precious metals:

Physical coins and bars 

A popular alternative to jewellery is gold and silver coins or bars. These can be procured from any gold or silver jewellery shop. It has become popular to attach a certificate of authenticity during the purchase of such coins or bars. This is indeed a better way of investing in gold and silver since it helps avoid wastage and the making charges that comes with fashion jewellery. 

However, acquiring gold in physical form does not eliminate many other types of costs and risks, such as the rental cost of a bank locker or the risk of theft. If you are insistent on buying physical gold or silver, it is best to buy from a local/known jeweller who can be trusted to buy it back at a later date. This offers you better liquidity.

Gold exchange-traded funds

Gold ETFs were developed as a concept in India by Benchmark Asset Management Company Pvt Ltd in a proposal to SEBI, and was approved in 2007. Since then, there has been a lot of traction in this space, and today there are about 14 gold ETFs in India. Despite the tumultuous times of 2020, there was an inflow of over Rs 6600 crore into gold ETFs. The assets under management of gold ETFs doubled by the end of 2020. 

Gold ETFs track the domestic physical gold price passively. They are mandated to invest in bullion, instruments that are based on gold prices, and/or in companies that deal with gold. Every unit of Gold ETF is equivalent to 1 gram of gold of the highest form of purity. Gold ETFs can be bought from NSE or BSE using a demat/trading account. They can be redeemed or sold on NSE/BSE just like any other stock holding. AMCs also allow redemption via physical gold in creation unit size. This is applicable if a person holds gold ETFs equivalent to 1 kg or multiples thereof. 

The demand to launch silver ETFs has been around for a while, and there are fewer alternative options. The proposal to launch silver ETFs is under consideration by SEBI. The legal and operational obstacles are being worked out, post which one could expect the bespoke launch. 

Related: Look beyond gold jewellery and invest in these avenues instead

Gold mutual funds

Gold mutual funds are open-ended funds that are mandated to invest in gold ETFs. Gold mutual funds do not track underlying asset prices on a real-time basis; the NAVs are updated at the end of the day as in the case of other mutual funds. 

Gold mutual funds can be availed directly from the fund houses without a demat account. They can be redeemed by submitting a redemption request to the fund house. If bought using a demat account, gold mutual funds can be sold like any other mutual fund. They also offer the benefit of investing through the systematic route. The expenses attached to mutual funds are higher as compared to ETFs. 

There are no silver mutual funds in India, however, there are funds that gain exposure in silver as a commodity along with other commodities/metals. 

Related: A quick guide to investing in gold saving schemes under MFs

Sovereign gold bonds 

SGBs are bonds issued by the RBI on behalf of the government, and are denominated in grams of gold. Investors buy gold bonds at the issue price, which is in line with the physical gold price, and the same will be redeemed on maturity. These bonds also carry an interest of 2.5% per annum. The tenure of the bond is 8 years, with early encashment allowed after the fifth year. The minimum investment is 1 gm and the maximum is 4 kg per individual. 

Precious metals funds or commodity funds

This is one way of investing in silver. These funds invest partly in physical silver along with other precious metals or commodities. The risk and volatility of investing in these funds are lower than investing in silver in physical form or through commodity exchange. These funds are professionally managed and offer good diversification. The holding is altered as per the future outlook for various precious metals or commodities. 

Commodity exchange

Both silver and gold are the most popular commodities traded on the Multi Commodity Exchange of India. To trade in commodities, one should open a commodity trading account through a broker. One can also dabble in futures and options; however, this requires in-depth knowledge of derivative trading. 

We hope this article helps you in picking the right mode of investment in gold and silver this upcoming festive season!