ETFs are the best option for those eyeing returns.
Gold is a good alternative to equity and helps diversify the risks from an equity portfolio. But jewellery is not the best form of investing in gold. The money you cough up towards labour and wastage charges of the jewellery eat into the returns from the metal.
Also, with the metal’s price very volatile now and sentiments weak, the falling price plus the additional charges you end up paying for each gram, may see you losing capital in case you want to convert it to cash again. Sample the numbers below:
Sharaddha bought a piece of jewellery in January when the sentiment on gold was upbeat. The jewellery weighed close 32 grams. Adding wastage of 6 per cent, the weight came to 33.92 grams. Multiplying the then rate of Rs. 2,916 to the net weight, the value was Rs. 98,910. The jeweller further added a 15 per cent making charge to it bringing the bill to Rs. 1, 13,746.
For 32 grams of gold, Sharaddha should have actually paid only Rs. 93,312, but she ended up paying 22 per cent more.
At the prevailing price of Rs. 2,670, if the above piece of jewellery is sold, Sharaddha will get only Rs. 80,316 — a loss of 30 per cent. Note, the loss from price correction in gold is only 8 per cent, the remaining was due to loss of grammage (assuming a wastage of 6 per cent) at the time of resale.
BUYING FOR OCCASIONS
But with the yellow metal being a part of traditional Indian weddings, gold buying will always happen, irrespective of the price of the metal or its future prospects.
If you also belong to this club, then look for some inexpensive jewellery where making charges are low. Generally only the light weight and designer piece of jewellery suffer a high making charge of 20-25 per cent.
Chains and bangles of basic designs attract a making charge of less than 5-7 per cent. However, if you are not in a hurry to buy gold, then you should actually postpone your purchase for some time now.
With the Reserve Bank of India’s new gold import regulations, the metal is in short supply in the country and jewellers are planning promos to incentivise sale of old jewellery. So, if you wait for a few weeks you may actually get a good bargain for your old gold and you can dispose it off and buy a new piece of jewellery.
For others, gold coins are a good option for investing in gold as these do not suffer making charges and have a good resale value.
But, now that most jewellers and banks have stopped selling gold coins, is there an alternative before a gold investor?
For those of you eyeing returns from gold, the ETF route is the best option.
For each gram of gold you pay only per gram market rate and nothing extra. These are stored in demat form in the same account where your stocks are and you will pay a small 1-1.5 per cent to the fund house as fees for the management of the ETF.
Buying and selling is hassle free as you can place orders online just as you do with shares. Also, with the safekeeping of the gold done by the fund houses, you are relieved of the pain of safekeeping of the metal. There are 13 listed gold exchange traded funds in the country now. GoldmanSachs gold backed ETF is the biggest in the country both in terms of gold holdings as well as daily volumes. It is safer to buy ETF units of large funds as they provide sufficient liquidity to buy/sell any time.
The few other demat options of buying gold are e-gold from National Spot Exchange and the gold sold at the online platform of Bullion India. With the National Spot Exchange having a regulatory overhang at present, you can perhaps keep away from this platform for now.
You can also invest in gold fund-of-funds. These are mutual funds that invest in gold-ETF units and you need not bother to open a demat account. You can also set up a systematic investment plan (SIP) here and invest a sum of money regularly in gold. However, the only catch here is that these come at a higher cost of about 0.5- 1 percentage points over gold-ETFs.