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How to Invest in Gold-Paper, Physical or Both?

How to Invest in Gold-Paper, Physical or Both?

Last Updated : March 20, 2021, 3:12 p.m.

Gold has been the best performing asset class in the last couple of years and has seen a lot of interest as an investment avenue. In 2019, gold delivered a return of 24% and gold returns in 2020 are already exceeding 20%. Considering the economic uncertainty due to COVID and volatility in stock markets, gold will witness more buying in the months to come. If you are curious whether you should be buying gold during COVID, please read another post of ours – Is gold a good investment during COVID ? These are the three ways through which you can buy gold:

Physical Gold

Over the years, buying physical gold has been the preferred way of buying gold. Whether it is jewellery, gold coins or gold bars, Indians have lapped up gold for generations. This has been mainly due to four reasons:

  • Feeling the security of a tangible asset through physical gold
  • Using as a consumption item for wearing
  • Inheriting and passing on to generations
  • Lack of other options for buying gold

The flipside or disadvantages of holding physical gold are:

  • Paying 15-20% as making charges when you sell jewellery
  • Fear of theft and security of physical gold
  • Inconvenience in liquidation – you need to physically visit a jeweller to sell.

Gold Mutual Funds

Gold funds are offered by many mutual funds and have become very popular among investors. This is how they work- when you buy a gold fund, you are allotted units like equity funds. These units represent 1gram of gold, so 1 unit=1 gram of gold. The mutual fund holds the physical gold on behalf of the unitholders with a bank that acts as the custodian. For the sake of understanding, it is like keeping your jewellery in a locker with a bank. Similarly, the mutual fund keeps the gold with a bank on behalf of many investors. These investors are allotted units based on their investment amount. One can buy gold mutual funds through two ways-Gold ETFs or gold funds. For gold ETFs, one needs to have a Demat a/c and buying and selling happens on the exchange. Gold funds are like any other equity or debt mutual fund where units are allotted to every investor. Advantage of buying gold funds:

  • No making charges, units are allotted basis the investment & price of gold for the day
  • No hassles or security concerns of keeping physical gold
  • Easy to sell-just log on the mutual fund’s website or app and sell in a click.
  • One can buy with an amount as small as INR 5000.

Digital Gold

One can also buy gold digitally on Wishfin using . Here, an investor can buy 24K, 99.9% pure gold from Augmont (Augmont has NABL certified and BIS accredited refineries in India). Your gold is insured and stored in lockers by Brink’s – the market leader in secure logistics and vault services. IDBI Trusteeship Services is there to protect your interests by periodically ensuring that your gold is kept safely in lockers at all times. You have freedom to buy/sell gold anytime. Minimum amount needed to buy is Rs 100 only.

Our recommendation on the best way among these three is based on the objective of buying gold. If you buy gold as a consumption item to wear and not so much from an investment point of view, physical gold is the only way for you. It is like buying any other consumable goods such as a car or a watch. However, if you want to buy gold as an investment, gold funds or digital gold are the best ways to buy gold since they deliver better returns than physical gold due to the lowest cost and no making charges. Also, there is ease of buying/selling with no security issues.

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