How to invest in Gold in India online and offline?

Long back I wrote a post on the various ways of investing in Gold. However, now many platforms available to invest in gold. Hence, thought to write a post on how to invest in Gold in India online and offline.

In this post, I am highlighting the options to invest in Gold in India online or offline. I try to explain the positives and negatives of each such options. Here, I am not going into the discussion of whether gold is best investment option or not. For me, I never recommend gold as an investment. But others may have a different opinion. However, as a personal usage, you must look for ways of acquiring it.

Before proceeding further, let us understand as Indians where we stand in overall world’s gold demand. Recently World Gold Council published a quarterly report. Based on that, jewellery demand for last quarter was down by 19%. However, combined Indians and China’s demand is more than half of the overall world’s gold demand for jewellery.

Demand during the first quarter of 2016 hit a seven-year low of down by 41% (Year on Year Decline). This may be due to strike by jewellery shops and raise in price. Below is the chart which displays the overall gold jewellery demand of India and rest of world.Indian Gold Demand 2016

This data shows how much fond of gold. Government trying to snub this physical gold jewellery buying as it leads to the national trade deficit. However, we are fond of gold and it continues forever.

In this post, I will try to give the options one can use to invest in gold either online or offline mode.invest in Gold in India online# Gold Jewellery

This is the oldest way of investing in gold for Indians. Here you will be buying gold in the forms of jewellery. The purity of gold mainly depends on the design you chose. Because based on design jewellery shops charge you the making charges and wastage. To know more about wastage and making charges, refer my old post “Gold Jewellery-Are you getting the right value?“. However, when you try to sell the same gold, jewellery shops will buy pure gold less of making charges and wastage.

The positives are as below.

  • Easy to buy. You go to the nearest jewellery shop and can buy it.
  • You will physically sense the owning of gold.
  • You can wear it during functions and enjoy it.
  • You can sell it easily or pledge it also.

The negatives are as below.

  • Safekeeping is the biggest hurdle.
  • If you use bank lockers, then also you have to pay the locker charges.
  • Making charges and wastage actually diminish the value of money you invested.
  • Purity always in question, no matter wherever you buy it.

# Gold Bars and Coins

This is another way of buying physical gold. It is best option if you are planning to convert these bars and coins in near future as jewellery. Usually, banks and jewellery shops sell such bars and coins. Purity will be bit higher than the jewellery buying. Because there is no such wastage or making charges here. Usually, they are in standard weight like 5 gm, 10 gm or 50 gm. Selling is the biggest hurdle here. Because even though banks sell these bars and coins, but they will not buy back. You have to sell such bars and coins only in jewellery shops.

The positives are as below.

  • Higher purity than jewellery.
  • You can gift the coins and bars.
  • Easy to buy.

The negatives are as below.

  • Banks only sell but not buyback. Hence, you have to approach the jewellery shops to sell.
  • Physical safe keeping is an issue always.
  • Converting these bars and coins to jewellery will again cost you.
  • Selling always will be at lesser than the market price. Hence, your returns will go down.

# Gold ETF (Exchange Traded Funds)

The above said two options are offline ways of investing in gold. However, Gold ETF is an option to invest in Gold in India online. You must have demat account to buy or sell. The minimum quantity you can buy is 1 gram. These are like you buy stocks in the stock market. Here the cost buying is the broker charges and demat account charges. Apart from these, there are no other charges.

The positives are as below.

  • Safest way of investment.
  • Cost effective than the above said offline mode of investment.
  • Accumulation of gold for a long term is easy.
  • It is a regulated market, unlike the jewellery market.
  • No question of making charges and wastage.
  • Purity at the highest level.
  • Tracking your gold investment is easy.

The negatives are as below.

  • You can’t see it. So you may not feel your GOLD.
  • Recurring expenses like fund charges and demat charges.
  • Sometimes you feel liquidity issue when you will not find any buyers.

# Gold Funds of Funds (Mutual Funds)

These are mutual funds who invest in Gold ETFs. So XYZ Gold Fund invest in ABC Gold ETF. The advantage here is the minimum requirement of investment is even Rs.1,000. Demat account not at all required. So by using Gold Mutual Funds, you can invest in Gold in India online. Here purity will not come into the picture. Because these funds usually not hold GOLD, but they invest in the Gold ETFs.

The positives are as below.

  • No demat account requirement.
  • You can invest a minimum of Rs.500 per month.
  • You can invest ONLINE.
  • Liquidity is not an issue.
  • You can opt for monthly SIP.

The negatives are as below.

  • This is being the Fund Of Fund (FOF), the cost will be higher than Gold ETF. Because you have to incur the cost of Gold ETF as well as the Gold Fund too.
  • It is considered as debt fund for taxation.

# Sovereign Gold Bond Scheme

This scheme was actually launched to avoid the physical buying of gold. Your purchase will be in terms of bonds. Along with price appreciation or depreciation, you will also get the interest on your investment. Denominations of the bond will be 5, 10, 50, 100 grams of gold. You can buy this scheme bonds from Banks/NBFCs/Post Offices/ National Saving Certificate (NSC)agents and others, as specified. They are the point of contact for buying and redeeming the bonds. This is the one more way to invest in Gold in India online.

The positives are as below.

  • No need of safekeeping and worry about robbery
  • You get interest income (may be around 1% to 2%) from this investment (which in my view be taxable).
  • Along with interest income, you will get the benefit based on the price movement of gold price.
  • In my view, it is best to invest in this bond than whoever planning to invest in an ETF. Because there are expenses and Demat holding costs to ETF, which is not in this bond.
  • A sovereign guarantee of the Government of India will feel you SAFE.

The negatives are as below.

  • Before jumping into an investment, think whether a gold investment is really a worth. Because Gold will give you a return of debt products with volatility as much as that of equity.
  • KYC requirement may hurdle for the few who feel no necessity of such KYC while buying physical gold.
  • In my view, this is not a game changer. Because many buy gold from unaccounted money. So they may still stay away from such scheme.
  • Do remember that this bond is backed of Government of India. But it does not mean that this will fetch you positive returns. If gold prices fall then you may end up getting a negative return. The only guarantee from Government is about the return of money, but the return on investment. Hence, the gold risk is always on your HEAD.

You can refer the features of this product from my earlier post “All about Sovereign Gold Bonds Scheme“.

# Gold Futures

This is purely for trading purpose but not for investment purpose. Because each future is a contract and if you not square off the position you are holding, then it will automatically get squared off. Also, understanding the future market is not easy for all. Because gold price movement in F&O market moves not only on the basis of demand and supply but a lot on international news. Hence, it is not an investment but a trading tool.

I tried to cover all options available in India of invest in Gold in India online and offline. If you find more interesting options, then you are free to add.

14 Comments

  1. You have given advantages and disadvantage both. Don’t know where to go

    Reply
  2. I have read the article still confused how to invest and which one to go for

    Reply
  3. Hi Basu,
    I have a doubt on Demat account. I have a SBI demat account and i am trading using that. Now i am currently abroad for long term over a year and i haven’t updated my KYC to NRI and i cannot see any online option to do so. So as i don’t want to get in to KYC issues or TAX issues of being NRI and trading. I like to know whether i can transfer my demat holding to my mother’s name by opening a new Demat account for her so that i can continue trading online using her account and file tax in her name.

    Reply
    • Vidya-Yes, including your savings bank connected to the trading and demat account you have to change the status to NRI. For this banks close the existing savings account and open an NRI account. Regarding trading and demat account, you must inform the SBI for the same. Yes, inter-transfer of holding as off-market settlement is possible. Bt I think process is bit cumbersome.

      Reply
      • Thank you Basu. I plan to transfer the demat holdings and close my existing Demat and bank account. I have emailed SBI to know whether i can transfer my holdings online to another demat account.

        Reply
        • Vidya-Pleasure and I hope they inform you that such facility not available.

          Reply
  4. Hi Basavaraj ,

    As usual very much useful article with detailed information. thanks a lot.
    I have couple of questions as follows :
    1. how do you see gold’s value in next 10-15 years? do you think it is going to be the same, will be increasing or decreasing? I know its difficult to predict but still want to have your view on it. 🙂
    2. if i have gold bars and kept it in bank locker, if for some reason some thing has happened like theft, how can i prove that how much of gold bars i had in locker?
    3. And if police recovers some bars from the burglars how should we prove that they belongs to us?
    4. can we have gold bars secured / invested for long term investments like marriage or abroad study etc.

    thanks in advance.

    regards,
    Mandar

    Reply
    • Mandar-1) Gold as an asset class of investment, given you the return of debt but a volatility of equity. Do you need such headache for your investment?
      2) For your surprise, let me disclose. Banks will not compensate anything for such robbery or theft. Because they don’t know the value you kept in locker.
      3) It is complicated and recovery depends on FAITH.
      4) NO, instead accumulate through ETF.

      Reply

Submit a Comment

Your email address will not be published. Required fields are marked *

5 × two =

Share This