Best Ways to Invest in Gold | Sovereign Gold Bond vs ETFs vs Mutual Fund vs Digital & Physical

While researching this video, I was a little surprised at how little

gold

there is on Earth. Best estimates put the inventory at around 190,000 tons of

gold

, as one would expect jewelry to consume most of this gold, about 50, then we have 20. percent in the hands of individuals which goes in the form of bullion. currencies gold exchange traded

fund

s gold

mutual

fund

s etc. the next 17 percent are in the world's central banks and the rest 13 are used in your smartphones microchips medicine and guess what dentistry to shape those long-lasting fillings it's remarkable how humanity's oldest treasure continues to reinvent itself in these times hello everyone my name is shankar nath and in this video we will examine the various

ways

in which you can buy gold and we will further compare each of these modes of purchasing from different angles to give you a complete idea of ​​what works

best

and under what circumstances am I sure you will learn a lot in the process subtitles root access curry let's get started gold can be divided into two main groups one the consumption cube and two the

invest

ment cube the consumption cube is simply gold in

physical

form this includes jewelry coins watches bracelet is gold that can be felt and touched and we cannot discount the symbolic and traditional nature of this precious metal the flip The side of buying

physical

gold is that it is expensive to buy due to manufacturing and design charges, it is expensive to keep because to storage costs and is expensive to sell due to impurities and the inconvenience of having to produce certificates of origin and purity. is the

invest

ment pool, which is a combination of different financial instruments such as

digital

gold, gold ETFs, gold

mutual

funds,

sovereign

gold

bond

s, etc., the common thread of these products is the fact that all prices are linked to the price of gold, but apart from that, there are a lot of differences in terms of cost, return, liquidity risk, lock-up period, purchase options and taxes.

We will study these features in greater detail in later sections of this video and don't forget to subscribe to the YouTube et money channel where we present gold. Standard NPS Mutual Fund Insurance Investment Videos and many other topics that will help you make some money or save some money. In fact, one of those videos that we would like you to watch is the interview we did with Mr. Vikram Dhawan, who heads commodities at Nippon India Mutual Funds. It is one of the most informative sessions on gold that can be found on YouTube, so be warned, I'll be sure to attach a link to that video in the description below before we get into how to buy, let's see if there's a I'll be very quick with this and this is what our research shows from a profitability perspective.

Gold generated annual returns of 9.6 percent over the past 40 years. In these 40 years, gold has had eight years of negative returns and there were 17 years in which gold underperformed the long-term inflation rate of 6 percent. From a risk perspective, gold definitely shows lower volatility compared to stocks, in fact there is a sort of inverse correlation between gold and stock markets, and gold performs very well. When the stock markets are depressed or when there is some kind of financial calamity like we saw in 1991, in the year 2000, 2008, 2009 and of course in the year 2020, then why buy gold? Historically, gold delivers between eight and nine percent over the year. long term and two gold is a useful hedge against inflation and stocks.

That being said, let's turn our attention to how you can buy gold. Gold can be purchased in physical or electronic format. Physical gold is the most popular material. Jewelry, gold coins. bullion or bars as they are called when it comes to the electronic format, there are many

ways

to buy gold, there are many options to buy gold, there is

digital

gold that can be purchased from many applications and then there are many gold mutual funds, most of which can be purchased from the et money app. There is the gold ETF which can be purchased through your DMAT account and then there is the gold

sovereign

bond

.

Now there is already a lot of information about these products on the Internet, so I will not repeat it here in this video, but for everyone's benefit. I will surely link some good articles in the description of this video for you to read later, so what we want to do here is focus on the most important features that one should consider when purchasing gold and compare five different gold products. With this, let's start with the most obvious of all points: availability of physical gold, digital gold, gold mutual funds and gold ETFs are available in most cases, the only exception to this is the sovereign gold bond which is available periodically, the reserve bank of India proposes to buy. windows every one or two months within which one can buy sovereign gold bonds this list of buying windows is available on the rbi website and is open for five days the next point of comparison is risk we wanted to have this section at principle because this comparison also sheds light on how these gold products are designed.

Physical gold has risks, in fact, it has many risks. There are risks such as losses due to theft, handling quality losses during the manufacturing process and many big and small problems. Digital gold is very good. innovation that makes gold affordable for many more people. Three players dominate this market in India, which are ogbon gold mmtc pamp india and safe cold. The big risk with digital gold is the lack of regulatory oversight, so no sebby, no rbi or anything else. regulatory body that looks into the affairs of these companies, so while we like digital gold as a product, we believe that this current lack of regulation is a big disadvantage for digital gold.

Gold exchange-traded funds or gold ETFs are instruments backed by physical gold, simply speaking. ETFs invest money directly in gold or in gold mining and refining companies. This is a big advantage in terms of risk for gold ETFs because the financial instrument is backed by real gold. A gold mutual fund is simply an extension of the ETF structure because most gold mutual funds invest in multiple gold ETFs, so a gold mutual fund is like a basket full of gold ETFs. . A good point in favor of gold ETFs and gold mutual funds is that both products come under the purview of the securities and exchange board of india, which ensure stricter compliance and provide adequate protection to investors from That point of view, gold ETFs and gold mutual funds are less risky.

The last comparison instrument from a risk point of view are sovereign gold bonds. This might come as a surprise to most, but sovereign gold. Bonds issued by the Reserve Bank of India are not actually backed by physical gold; In other words, sovereign gold bonds are a derivative instrument, meaning that the Indian government is simply using the price of gold as a benchmark against which it promises to pay interest and principal on a regular basis, so where is the risk in this? The risk is there and what I say below might be a bit theoretical and far-fetched, but the only risk with sovereign gold bonds is a sovereign default by the Indian government.

A situation like this occurs when a country reaches very high debt levels and simultaneously suffers from low or negative economic growth. We don't see India anywhere near the stage so let's keep this risk possibility on the lower end for now, in this section we look at the affordability factor or the minimum investment required to buy physical gold the lowest denomination of physical gold is the currency of one gram gold which at current prices would be close to six thousand rupees now one of the biggest advantages of electronic gold has been the expansion of the user base and digital Gold has had a great contribution there, because digital gold is You can buy for as little as one rupee.

Likewise, gold mutual funds are not far behind and one can start investing through them for as low as Rs 100 if you are interested in buying gold mutual funds. Funds check eti money app, in addition to a wide variety of nine different gold funds, our platform features fund rating, performance history, risk, source, expense ratio, etc., making it It will help you make better investment decisions regarding ETFs and sovereign gold bonds. The minimum one needs to purchase is one gram, which means you need to spend a lot more money on these products compared to digital gold and gold mutual funds.

Now generally, returns and costs don't add up. Returns are returns and costs are costs but when it comes to gold returns, costs go hand in hand and that is mainly because the underlying asset in case of all five products is the same i.e. gold, so if a product gives you a higher return, it usually means that it is charging a lower cost and vice versa, let me explain all this to you through some numbers and calculations. It will be much clearer to you. In the case of physical gold, there are three costs: design and manufacturing, the cost of storage, and a three percent tax that applies to all purchases.

These are not small costs, especially the design and manufacturing charges, which are around 10 percent, even assuming just coins and bars, there is the recurring cost of insurance and the bank locker, which will cost you between three and four percent every year, which is quite a lot. Okay, so let's now switch to digital gold, just like physical gold. Digital gold 2 attracts a quantity of 3 which reduces your profits, but our research shows that there is a much more important cost element with digital gold that is often overlooked and that is the spread between the purchase price and the sale, let me explain this to you, your digital gold purchase is backed by real physical gold which is then stored in secure bank grade vaults, in addition to storage, there are many incidental costs such as technology costs, hedging costs, insurance and transportation.

Cost of digital gold companies manage these costs using the difference between the buying price of gold and the selling price of gold. Think of it like exchanging rupees for dollars and then reconverting the dollars to rupees ignoring any changes in price you would probably get three to four percent less on this exchange, in fact when I tested this buying and selling process On a popular app that offers digital gold, my bid/ask spread reached about six percent, which is pretty high, so something to keep in mind next. we have gold

etfs

that have brokerage costs, dmat account expenses and of course an expense ratio altogether we are looking at an expense of 0.5 percent to percent when it comes to gold

etfs

comparatively the gold mutual funds have an expense ratio that is a little bit higher than the expense ratio of the etf and that is because the gold mutual fund is basically a basket of gold etfs so there is a cost of 0.5 to 1 ETF plus gold mutual fund adds an additional 0.1 to 0.2 percent, however, from a comparative perspective.

I will put gold ETFs and gold mutual funds somewhat on par because while gold mutual funds are more expensive by 0.1 to 0.2 percent, in the case of gold ETFs there are Brokerage Fees and DMAT Of course, keep in mind that both Gold ETFs and Gold Mutual Funds have an element of exit loads in case you redeem your units too early. The final product to compare is the sovereign gold bond, which has become quite popular in India due to the additional returns it offers. It is not as simple as it seems, but First of all, let's detail it here, unlike other gold products, sovereign gold bonds have no visible expenses, I mean, forget about the expenses, on the contrary, there is a discount of 50 rupees per gram if you complete the entire process online.

The second consideration and perhaps what makes the sovereign gold bond so popular is that it offers a fixed interest of 2.5 percent per annum on your initial investment. This interest is credited to the investor's bank account twice a year, so to put it into numbers, let's assume that gold prices will rise by 10 next year, which means that sovereign gold bonds would get 10 plus 2.5, that is, an annual return of 12.5 percent. Gold ETFs and Gold Mutual Funds would gain between 8.8 and 9.5 percent after considering their respective expenses. Digital gold option would start on a difficult terrain due to GST and bid-ask spread, So while it's hard to say exactly how much we think these options could offer much lower returns, like five percent or so, and with physical gold we expect an even lower return buildup due to the variety of expenses and incidental costs. netWhen it comes to yields, the sovereign gold bond clearly leads the race notice.

I said you lead the race which means I won't declare you winners yet because there are two more areas where we need to compare liquidity and most important taxes but before we get to that gifting gold has been considered auspicious in our Indian culture, as it symbolizes sharing one's prosperity with other people outside of gold. The

best

thing you can do and should do is share this video with your friends and colleagues through WhatsApp, LinkedIn and Facebook so that they can also benefit from the learnings and knowledge that we have shared here now liquidity is not a problem in most Of the products you can sell your jewelry your gold coins digital gold can be sold at any time and so is the case with your ETFs and gold mutual funds, the flexibility of being able to sell is a great advantage because gold prices at Periods of ups and downs often follow, which is a lot like stock markets, so if the price of gold goes up too much, you'll want to be in a position to book some profits.

Having said that, it's with sovereign gold bonds where there are Some conditions and peculiarities that come first of all, the sovereign gold bonds have a maturity of 8 years now, if you want to redeem these bonds earlier then you have two options one, you can call these bonds and offer them in the secondary market after six months of issue and two, you can prematurely cash in your bonds after five years without having to go through the secondary market if you do not want to use any of these approaches and If you want to hold on to your still maturing sovereign gold bond, then you can also seek loans against these bonds, For example, the State Bank of India allows individuals to borrow up to 35 percent of the value of these bonds.

A second point that was made during our research with sovereign gold bonds is also related. Due to liquidity or lack thereof, the problem here is that unlike a normal stock or currency market, there is no thriving exchange market for these bonds, so if a seller comes to sell your bonds , the buyer knows that the seller has run out of liquidity. options and therefore demands a discount, so imagine that these sovereign gold bonds sell most days at a discount of two to six percent compared to the price of physical gold, even though they are They offer with an interest of 2.5 percent, which means that if you are looking to buy sovereign gold bonds and hold them to maturity, first check the offers available in the secondary market instead of applying for a new issue.

There is a good chance that you will get a very profitable offer. The final comparison element is the taxes you have. Payable at the time of sale or when your investment matures Capital Gains Tax applies to the sale of physical gold, digital gold, gold ETFs and gold mutual funds, the tax depends on your holding period, which is the time between buying and selling, so if the gold is sold within three years and, at a profit, it will be considered a short-term capital gain. This means that the profits will be added to your income and you will be taxed according to the applicable income tax lab if the gold is sold after three years. years and with a gain then it will be labeled as long term capital gain, in this case your long term capital gains will be taxed at 20 with indexation benefits.

Now let's come to the sovereign gold bonds, firstly, remember that all interest received on account of gold bonds is added to your income and taxed as per your current income tax lab; Secondly, if the sovereign gold bonds are redeemed at the end of 8 years, which is the duration of these bonds, all capital gains are completely tax-free, now, interestingly, you don't have to wait the eight years to Redeem your tax-free bonuses. Remember that we mentioned that there is a 5-year lock-in on these bonds. It just so happens that the RB offers redemption windows every 6 months that you can use after 5 years.

If you have to redeem your points by using these redemption windows, you can avoid paying any capital gains tax on these bonds. So remember the simple rule: If the bonds are redeemed with the RBI, then there will be no capital gains tax, but if you redeem them in the secondary market, then there will be a fairly simple capital gains tax, so While this was quite a long video, but given the growing demand for e-gold in India and around the world, we wanted to do a detailed review on this, we believe that gold is an important asset to have in one's portfolio.

Due to its constant return inflation hedge and weak correlation with stocks in this video we also compare five popular gold products based on availability risk, return on initial investment, cost, liquidity and taxes, it is Fair to conclude from this comparison that physical gold and digital gold do not. They didn't make the cut due to their risks and a fairly large bid-ask spread now between ETFs mutual funds and sovereign gold bonds. Here are some basic rules we can prescribe if you are investing for five years or more. Opt for sovereign gold bonds that offer interest. on your investment and your capital gains are tax free if you redeem them within the RB windows, on the other hand, if you are being tactical with gold and investing for a shorter period, gold etfs and mutual funds Gold are the preferred route due to the larger market. liquidity and convenience I hope you like this video and that you learn a lot from the ideas presented.

Please subscribe and comment on this video and don't forget to gift it to your friends and family via Facebook, WhatsApp and other social media properties. Thank you. You for watching and I hope to catch up with you next week with another eye-opening video until then, investments in mutual funds are subject to market risks. Read all