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Preferred form of gold investing
Tue, 4 Dec Pre-Open

Gold prices have been on a rise in the recent past. Many are contemplating buying at these levels as well assuming that prices will further rise in the future. However, before buying gold one must explore various possible options that are at hand. Exploring options is of particular significance since gold is expensive and prices are volatile.

First and the easiest option is to buy physical gold. However, the problem with this option is that you have to buy some set quantity of gold. In other words, you cannot breakdown your purchase into micro milligrams. You will have to buy a quantity which may not suit your pocket. In addition to that you also have to incur cost for storing that gold. The second option could be to buy gold exchange traded funds (ETFs). However, for that you need a demat account with the broker. To avoid the hassles of opening a demat account one may buy funds that invest in gold ETFs. However, that again has a cost attached to it. It adds additional layer of charges.

Another popular option is to invest in the gold saving schemes that are being run by various jewellers. In this option, you deposit a fixed amount with the jeweller for a certain period of time, say for example, 12 months. Then after 12 months are complete the jeweller makes one payment on your behalf. Then, you can buy gold out of that money saved. This option, too, has drawbacks attached to it. First, the amount you deposit with the jeweller does not fetch you interest. Second, you are not hedged again the rise in gold price. In other words, if the gold price rises during your saving tenure you tend to gain nothing.

So, in that case, what is the best plan to invest in gold?

We think the Systematic Investment Plan (SIP) is the best way to go about investing in gold. In fact, daily SIP is even more preferable. There are several advantages to buying gold in this mode. First SIPs averages your purchase price. This is not the case with ETFs where you make one time investment. SIPs also enable you to invest in very small amounts. This may not be possible if you buy physical gold. It may be noted that with SIPs you can start accumulating gold by setting aside as little as Rs 1,000 per month. Considering all these benefits we feel that SIPs are a good investment avenue to buy gold compared to other options.

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Feb 16, 2018 (Close)