In India, Gold is an essential part of lives since ages. People are emotionally connected to gold and it comes an attraction point at the time of marriage seasons. Apart from jewellery, families also buy the gold in different forms such as coins and biscuits. But, since last few years, investment in gold without physical possession has been becoming normal for Indian gold investor.
Define Paper Gold?
When you buy gold but you don’t get gold in physical form instead you receive a paper or certificate and get returns based on actual gold price fluctuations. In short, you would not get physical aurous in return of investment.
How does it function in investment biosphere?
Three alternatives are there to buy gold through paper at present. Investors can buy the same as per their motive and capacity. We will discuss all the options simultaneously.
- Exchange Traded Funds: one can easily buy and sale the same as any normal stock using demat account. It can be easily converted to cash by selling it. It gives investor right to hold described units of gold in paper form, its value would be equivalent to real gold. It is also known as EFTs and it is calculated as unit which is equal to 1 gram of gold. Hence, 1 Unit of EFTs = 1 Gram of Gold.
- Mutual Fund (Gold): Many investors put gold in their portfolio to diversify the risk. But one thing that needs to be addressed here, that the expense ratio of managing gold ETFs in mutual fund is comparatively higher. There is no any other cost of holding the same except it. It is up to investor only what portion of gold they want to put into mutual fund but expert recommend it to around not more than 4%-10%.
- Sovereign Gold Bond: With the fixed interest rate of 2.5%, it also gives investors to edge over price volatility. It is issued by government of India. If you are a kind of investor who needs safety and security at the same time upon investment then, this is a great scheme for you. The value of the same would be determined by the average closing price (average) based on weekly proceeding from the IB And JZ Ltd.
- Paper Gold Vs Metal Gold
Conclusion
If you are planning to invest in paper gold then you should thoroughly go through the pros and demerits of the same. There are certain risks related to buying paper gold with large capital at first. Because, there is an element of counter party risk which one should not avoid. We have tried our best to bring down some of the vital points and it is up to you whether should go ahead with the same or not. Take a wise decision.
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