Investing in GOLD? Read this!

The pros and cons of investing in gold coins and bars, jewellery, gold ETFs and gold mining stocks.

The love for gold has never abated in India. Households have been purchasing gold on every occasion: whether it's a marriage or festivals. Bullion dealers have been trading in coins and gold bars while retail investors have invested in gold exchange-traded funds in record numbers. Of late there are many non-banking financial companies that have joined the gold rush, offering loan against gold.

There are number of methods available to trade in gold but the question is which one is more profitable? Before deciding on the avenue to be used it is also advisable to check the pros and cons relating to investing in different categories.

Anil Rego is the founder and CEO of Right Horizons (http://www.righthorizons.com/), an investment advisory and wealth management firm that focuses on providing financial solutions that are specific to customer needs.  

Investment options: Pros & cons

Gold coins: Investment rationale

As banks sell gold coins, its purity is guaranteed, unlike jewellery. Investors who wish to go in for physical investments in gold and in small lots over a period of time can consider investments in gold coins.

Gold bars: Investment rationale

If storage and high investments are not an issue then this can be considered as one of the best available option for investment in physical gold as loss due to premium/transaction charges will be less.

Jewellery: Investment rationale

Indians invest in jewellery for various reasons. It can be used for marriages and can also be liquidated during a crisis. Accumulating jewellery is also considered a tradition, thus it is the popular way of owning gold.

Gold ETFs: Investment rationale

Have gained huge popularity among the investor fraternity; it is easy to invest and is considered similar to 'investing in gold'. But comes with the added advantage of no risk of physical storage.

Note: Gold funds are basically fund of funds which invest into units of Gold ETFs. The only differentiating factor is the cost which is slightly higher as compared to ETF but gold funds are actively managed when compared to ETF's. However Gold funds do not require demat account for carrying out investments

Gold mining stocks: Investment rationale

It can turn out to be a high yielding and profitable investment avenue but requires detailed and thorough research and analysis of the companies involved in mining of gold. Investors with an appetite for risk can consider this investment avenue.

Key takeaways

As mentioned earlier, the methods are many but the one to choose is a subjective matter and depends upon the investors risk appetite. An investor who wants to invest in gold with the intention of capital gains can consider investing in Gold ETFs and gold funds (gold funds can be considered in case the investor does not have demat account). However, if someone is looking ahead for investment in gold with an emotional attachment towards the precious metal then the same can be done in physical form.