With the Festival of Lights just gone by, a lot of you might have accumulated some cash gifts this season. Before you start spending them on unwanted luxuries, might I suggest a few avenues where you could park your Money?
Most Indians love to accumulate Loads and Loads of the Precious Yellow Metal during the festive season. But, is that purchase really an investment like you convince yourself it is while buying?
Physical Gold does have its own Disadvantages though. Loss of making charges spent, Non Refundable GST paid and Storing Charges are a few of the Disadvantages of Buying Physical Gold as an Investment.
With the advancements in the Markets and Financial World, there lie a number of New Investment Avenues if you specifically want to Invest in Gold. Gold ETF’s and Sovereign Gold Bonds have emerged as the New Age Alternatives to accumulating Physical Gold. Digital Gold offered by several platforms online also serve as an alternative and helps save on the Storage Costs as well.
Alternatively, if you do not want to invest in Gold, Mutual Funds Pose as another great alternative to Invest your Diwali Money.
Let’s Analyse each of the Avenues below:
Gold Exchange Traded Fund (ETF’s)
Gold ETF’s present a valuable alternative to Physical Gold. Gold ETF’s have Gold as the Underlying Asset. It saves you the High Buying, Storing and Selling Costs associated with Physical Gold. 1 Unit of the ETF typically represents One Gram of Gold. ETF’s are traded on the Stock Market just like other Stocks and Mutual Funds.
Even though there are no entry or exit charges associated, there are three costs that come with gold ETFs. One is the expense ratio (for managing the fund) which is generally low compared to other mutual funds (around 1%). Second, is the broker cost that is paid every time you buy or sell Gold ETF units. Third, which isn’t technically a charge but impacts the returns is the tracking error. It arises because of the fund’s expenses and cash holdings thus not mirroring actual gold price.
Soveriegn Gold Bonds (SGB)
Sovereign Gold Bonds aren’t as freely available as ETF’s but are issued by the Government every 2-3 Months. The issues remain open for a week. Investors are paid 2.5% Interest Semi Annually. Additionally, the Value Appreciation of Gold is also claimed by the Investor. The investment ranges from a Minimum of 1 Gram to a Maximum of 4 kgs for individuals and HUF and 20 kgs for Trusts and similar entities.
Sounds like a great option right? But there is one downside to it though. The minimum holding period is 5 years and the tenure is 8 years. So, it would only be wise to invest in it if you can afford to forget about the money for atleast 5 years.
Digital Gold
Digital Gold is one of the Most Transparent options to buy and sell gold instantly. Mobile Wallet Operators such as Google Pay, Paytm and PhonePe have started offering Digital Gold in association with MMTC – PAMP. They offer upto 99.99% purity (24 Karat) and you can buy units for AS LOW AS RS. 1.
The Gold purcahsed will be stored with the operators for a maximum period of 5 years after which you must either sell it or Take delivery in the form of Gold Coins. However, GST at 3% is applicable on the purchase of Digital Gold.
Mutual Funds
Even a paltry sum of Rs. 500 or 1,000 can be invested in MF’s. Think what difference would that make? Let me introduce you to the concept of Compounding! Even a small amount invested can turn into a sizeable amount over a long time.
The Markets are also at a reasonable valuation, and might offer great returns over a period of time. For Example: Even if you Invest Rs. 10,000 out of your Diwali Cash into MF’s, at a reasonable Rate of Return at 18%, the amount will eveolve into Rs. 52,000 over 10 years.
You should invest based on your Risk Appetite. High Risk takers can opt for Equity Based MF’s whereas Investors with a Low Risk Appetite can opt for Debt MF Schemes.
Additionally, there are SIP’s (Systematic Investment Plans) which you can use as an Investment Avenue, if you’re ready for the commitment of Recurring Weekly, Monthly or Quarterly Payments. SIP’s start for as low as Rs. 100 as well and provide for a great opprtunity to accumulate Wealth over time as the amount is invested into Mutual Funds.
So this Season, Choose whether to Lavishly Spend or Invest the Money to generate Returns which are in Multiples of the Investment Amount.
The Financial Forum 
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