Three ways to buy gold in paper form
You have an option to invest in gold through the mutual fund route as well. The underlying asset in a gold mutual fund is gold ETF.
Sovereign gold bonds: If you want to include gold in your invest portfolio, then sovereign gold bonds can work for you. Besides the price changes, it also gives you a fixed interest of 2.5%. Sovereign gold bonds are government securities issued in the units of grams. It is available in paper and demat form and are issued by the Reserve Bank of India and are issued in tranches. The bond’s nominal value is based on the simple average closing price in the week preceding the subscription period, published by the India Bullion and Jewellers Association Ltd. There are no additional charges to invest in these bonds.
Gold exchange traded funds
You can buy gold in paper form through gold exchange traded funds (ETFs). From gold ETFs you get the returns on the gold prices. You cannot buy it without a demat account. Gold ETFs track domestic price of gold and usually each unit of ETF is equivalent of 1 gram gold. There is a cost to invest in gold ETFs—you have to pay an expense ratio mostly in the range of 0.9-1%. This means you will have to pay a fee equivalent to the expense ratio. So if the value is up ₹100, and at 1% expense ratio, you will get ₹99, besides expense ratio check for brokerage cost of opening a demat account and taxes.
Gold mutual funds
You have an option to invest in gold through the mutual fund route as well. The underlying asset in a gold mutual fund is gold ETF. You have to pay expense ratio which is the fee you pay to the asset management company to manage your mutual fund. The expense ratio is higher in gold mutual fund, compared with gold ETFs. Basically, the gold funds add the gold ETF expense ratio to the overall cost. There are no other costs attached to gold mutual funds. Gold as a product is a long-term hedge against inflation. If you want to diversify your portfolio and include gold in it, exposure of 5-10% is recommended.
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