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How to Invest in Gold and how to calculate the ROI?

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How to Invest in Gold and how to calculate the ROI?

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Do you have questions like how to invest in gold? Or how to invest in gold in India? Then, you would be surprised to know that you might have already invested in gold. Yes, we all possess gold, mostly in physical form. As Indians, we tend to hold gold in jewellery, coins and bars. We consider gold as an asset that can help you during emergencies. We also give gold during occasions like marriage, festivals, childbirth and other such auspicious events. 

So, if you are thinking about how to invest in gold, there is a high chance that you already have it. 

But can you sell that gold during an emergency? Can you overcome that attachment to the asset and sell it? Or, can you get the full value of your gold ornaments when you convert them into cash? 

The answers to most of these questions would be ‘no’ because there are a lot of limitations when it comes to investing in physical gold. There are limitations like storage expense, purity, and the deduction of making charges when buying physical gold. So, let’s just tweak your question to ‘how to invest in gold without these limitations?’. 

The answer is simple, you can choose virtual or dematerialised gold investments. Let’s learn about dematerialised gold and its return on investment (ROI). 

How to invest in gold online? 

Holding gold in a dematerialised form is similar to holding your money in your bank account. You cannot see it, but if you hold it, you can track it and use it to buy different things. Similarly, with your virtual gold investments, you cannot see the gold you have in physical form, but you own it. Also, to convert it into cash, you need to redeem your investment. There are three popular types of virtual gold investments in India. These are gold Exchange Traded Funds (ETFs), gold bonds and digital gold. 

Let’s learn about investing in them in detail: 

1) How to invest in gold ETFs?

Gold ETFs are mutual funds that track the price of the purest form of physical gold. These are passive mutual funds since the returns of the funds mirror that of domestic gold prices. Therefore, the fund manager has a lesser role in managing these funds. Similar to other passively managed funds, gold ETFs have a lower Total Expense Ratio (TER). 

These ETFs are listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) and are traded on the cash segment like any company’s stock. They are bought and sold like stocks on the exchange at their current real-time price. The current price of gold is listed on the BSE and NSE websites. 

You’ll need a Demat account to invest in gold ETFs. 

2) How to invest in gold bonds? 

The Sovereign Gold Bonds (SGBs) are a popular choice for holding gold in an electronic form in India. Like any other bond, they have a fixed maturity period and offer investment interest. Currently (as of July 2022), the interest rate on these bonds is 2.5% per annum. You can invest in these bonds with cash, converting them into money immediately on maturity. In SGBs, you can invest in gold in terms of grams and its multiples. The minimum amount an individual can invest is one gram of gold, and the maximum is four kilograms in a fiscal year (April to March). The minimum and maximum quantity of investing are the same for the Hindu Undivided Family (HUF) as well. 

To invest in SGBs, you need to fill out the application form from the Reserve Bank of India (RBI) website. You need to furnish details like your Permanent Account Number (PAN) and transfer the cash for buying the gold bonds on time to get the allotment. The maturity period for SGBs is eight years. Through this period, the interest on your investment is semi-annually transferred to your bank account. 

3) How to invest in gold mutual funds? 

Gold mutual funds have gold as their underlying asset. These mutual funds can invest in gold ETFs, gold bonds, and other gold mutual fund schemes (Fund of Funds or FoFs). You can invest in these funds like any other mutual fund. Do you have a goal in mind? Do you want to invest in gold mutual funds? You can invest in the mutual fund of your choice with ease through the Fi money mobile app. Complete your KYC registration, and instruct the app to invest a certain amount of money at your preferred date in your chosen mutual fund scheme by using FIT rules. 

The Fi money app can help you quickly invest in any mutual fund. You can complete your mandate and fix your SIP amount and date to start investing. 

4) How to invest in digital gold? 

Another popular way to invest in gold in an electronic form is through digital gold. These are nothing but secured digital vaults where you can either hold gold in terms of grams or value in the purest form. These are just like your regular mobile payment wallets, where you can buy and redeem gold anytime. 

5) Why is investing in virtual gold better than physical gold?

Many important features make virtual gold investments better than physical gold. Let’s understand some of the key benefits. Unlike physical gold, which has different prices for different regions, virtual gold has the same price pan India. Further, the hassles of storing, protecting it from spoilage, ensuring quality and paying for making charges are absent while investing in virtual gold.

How to calculate ROI on gold investments? 

You can calculate the ROI on gold investments just like any other investment. The formula for calculating the ROI on gold investments is as follows: ROI on gold investment = {[(Current value of gold investment) - (cost of gold investment)] / (Total cost of investment)} x 100 

If you invested ₹20,000 in a gold mutual fund in the past and its value is ₹24,000 today, the ROI is [(24,000 — 20,000) / 20,000] X 100 = ₹20. 

To conclude

By investing in virtual gold, you can get the benefits of investing in gold without the hassles of holding physical gold. Gold as an investment provides stability to your portfolio during uncertain economic conditions. During these times, the returns on your equity and equity-based investments can steeply decline. Gold, being considered stable during uncertain times, is preferred more by investors to guard against emergencies. 

Frequently asked questions 

1) What is the cheapest way to invest in gold? 

You can invest in gold through gold ETFs, Sovereign Gold Bonds, gold mutual funds and digital gold wallets. One of the cheapest ways of investing in gold online is through gold mutual funds. You can invest in gold mutual funds through the Fi money mobile app. 

2) Is investing in gold a good investment? 

For any investment to be good, it needs to be in line with your risk appetite and financial goals. Investing in virtual gold can add stability to your portfolio and help guard your investments against economic uncertainties. Seeking financial advice from a Securities and Exchange Board of India (SEBI) registered investment advisor can help you ascertain if investing in gold can be a good investment option for you. 

3) How do I start investing in gold? 

You can invest in virtual gold through investments like gold ETFs, Sovereign Gold Bonds, gold mutual funds and digital gold wallets. If you want to start investing in gold ETFs, you will need to open a Demat account. For investing in SGBs, you can fill out the application form for allotment and remit the investment money on time to get the allotment. Similarly, if you want to invest in gold through digital goals wallets, you can decide your investment amount or grams and begin investing. 

Lastly, for investing in gold mutual funds, you can use the Fi money app. Through this app, you can invest after completing your KYC registration. You can set your SIP amount and date and start investing in a gold mutual fund scheme. 

4)How can a beginner invest in gold?

Beginners can try their hand at gold Mutual Funds or ETFs. Alternatively, they can also try buying gold in the physical form or try out sovereign gold bonds (SGBs).

5) Is it safe to buy gold online?

Buying gold online is an increasingly safe process as long as you research into the company and are sure about the credibility of the platform.

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