Investing in Gold through Electronic Medium

03 Jun

The inflationary pressure seen in the economy, tumbling stock market, sub-prime mortgages, diminishing value of rupee against dollar, slower economic recovery, etc are few reasons, diverting the interest of investors towards safe heaven gold. Not only investors but also nations consider gold as a safe option to make investment in. Gold is considered the most useful instrument that can help during the period of crisis. There are various ways through which one can invest in gold through electronic mode.

Gold ETF: Gold ETFs are Exchange Traded Funds, very much similar to mutual fund units. Each unit is equal to 1 gm of gold. However, some fund houses have 0.5gm of gold as 1 unit. Gold ETFs are tradable through the demat account just like mutual fund units. The NAV is disclosed periodically.

The gold has a quality of 99.9% that means, is of good quality. Gold ETFs eliminates the risk factor which is involved when purchased from outside. The main advantage is that, you do not have to worry about its storage and safety issues as that is required in physical gold. They are also very liquid as, can be easily bought and sold. Another advantage is it doesn’t require lot of investment. It’s highly tax efficient in comparison to physical gold. You have to keep physical gold for 3 years to claim long-term tax benefits whereas, in case of gold ETFs its just 1 year. Kotak Gold ETF, UTI Gold ETF, and Reliance Gold ETF are few examples of gold ETF.

E-Gold: National Spot Exchange Limited (NSEL) allows trading in gold, silver and copper in electronic form known as, e-gold, e-silver and e-copper. More metals is expected to be introduced in future.

This allows investors to buy gold in dematerialized form and the trading hour being 10 A.M- 11.30 P.M. It allows investor to buy 1 unit of e-gold which is parallel to 1 gm of gold and the purity is 995. You have to open your own demat account from the list of depositories. The list is available at NSEL website. One may sell the e-gold and get the cash back or take physical delivery from NSEL de- materialization centres. Right now the centres are in Mumbai, Delhi and Ahmadabad. Anyone interested for some other details relating to e-gold can refer site, http://www.nationalspotexchange.com/NSELUploads/Trading_Doc/2010/Circular041_2010.pdf.

Gold funds and fund of funds: Gold funds are very much similar to mutual funds managed by fund houses. The main advantage is that you do not need to have a demat account. The NAV of the fund reflects the price of gold. This option is pretty good for investors who do not have any demat account and are desirous of investing in gold. Besides this, you do not have to worry about storage cost and safety of the same.

Yet you have another option to invest in gold, Gold FoF (Fund of Funds). The fund invests in various gold ETFs. Its NAV is the weighted average of the NAV values of the various ETFs that the fund of fund comprises of.

Finally to conclude, gold seems to be bullish in the near future but do consider your own factors before investing. Return from gold is purely the outcome of price escalation and not from dividend or bonuses and is purely driven by market sentiments.