Gold has been a popular investment in India for centuries. Traditionally, people have invested in physical gold in the form of jewelry, coins, or bars. However, with the advancement of technology, it is now possible to invest in paper gold, which offers a convenient and cost-effective way to invest in the precious metal. In this article, we will discuss how to invest in paper gold in India.
What is paper gold?
Paper gold, also known as gold ETF (Exchange Traded Fund), is a financial instrument that tracks the price of gold. It is a type of mutual fund that invests in gold bullion, and the value of the fund is based on the market price of gold. Paper gold is a convenient way to invest in gold without having to worry about storing physical gold.
How to Invest in Paper Gold in India?
Investing in paper gold in India is easy and can be done in the following steps:
- Open a Demat account: To invest in paper gold, you need to open a Demat account with a registered broker. A Demat account is an electronic account that holds your securities, including shares, bonds, and gold ETFs.
- Choose a gold ETF: There are several gold ETFs available in India, and you need to choose one that suits your investment goals. Some popular gold ETFs in India include HDFC Gold ETF, SBI Gold ETF, and ICICI Prudential Gold ETF.
- Place an order: Once you have chosen a gold ETF, you need to place an order with your broker. You can do this online or by calling your broker. You need to specify the number of units you want to buy and the price at which you want to buy them.
- Pay the purchase price: After placing the order, you need to pay the purchase price. This can be done online through net banking or by depositing a cheque at your broker's office.
- Receive the units in your Demat account: Once the payment is received, the units of the gold ETF will be credited to your Demat account. You can monitor the value of your investment online or through your broker's mobile app.
Benefits of investing in paper gold
Investing in paper gold has several benefits over physical gold:
- Convenience: Investing in paper gold is convenient as you don't have to worry about storing physical gold. You can buy and sell gold ETFs online or through your broker's mobile app.
- Cost-effective: Investing in paper gold is cost-effective as you don't have to pay for storage, insurance, or making charges, which are associated with physical gold.
- Liquidity: Paper gold is highly liquid as you can buy and sell gold ETFs on the stock exchange. You can sell your units anytime during market hours and receive the proceeds in your bank account within two working days.
- Transparency: Investing in paper gold is transparent as the value of the gold ETF is based on the market price of gold. You can monitor the value of your investment online or through your broker's mobile app.
Risks of investing in paper gold
Investing in paper gold also has some risks that you need to be aware of:
- Market risk: The value of the gold ETF is dependent on the market price of gold. The price of gold can be volatile and can fluctuate based on various factors such as global economic conditions, geopolitical events, and inflation.
- Counterparty risk: Paper gold is a financial instrument, and there is a counterparty risk involved. If the issuer of the gold ETF goes bankrupt, you may lose your investment.
- Expense ratio: Gold ETFs charge an expense ratio, which is the cost of managing the fund. This can range from 0.5% to 1% per year, and it can reduce your returns over the long term.
- Tracking error: The performance of the gold ETF may not exactly match the performance of the underlying asset. This is known as tracking error and can be caused by factors such as expenses, management fees, and transaction costs.
- Taxation: Gold ETFs are taxed as non-equity mutual funds, and the capital gains tax is applicable when you sell your units. The tax rate depends on the holding period and your income tax slab.
Investing in paper gold in India is a convenient and cost-effective way to invest in the precious metal. You can invest in gold ETFs through your Demat account and monitor the value of your investment online or through your broker's mobile app. However, investing in paper gold also involves some risks, such as market risk, counterparty risk, and tracking error.
It is essential to be aware of these risks and to invest in gold ETFs that suit your investment goals and risk tolerance. As with any investment, it is recommended to do your research and consult with a financial advisor before making any investment decisions.