Dhanteras and Diwali are just around the corner. Though we might not be able to enjoy some of the usual pleasures of shopping and socializing this year, we can still indulge in other traditions such as sweets, and buying gold.
In Indian tradition, buying gold during Diwali is considered as a symbol of luck, prosperity and auspiciousness. This yellow metal has delivered healthy returns over the long term and has become an asset that provides financial security in these times of crisis. But in their eagerness, very often buyers tend to splurge on gold jewelry or gold coins by convincing themselves that they are investing rather than spending as the value of the holding is likely to increase in the future. Let’s look at a few key challenges in buying different physical forms of gold such as jewelry, bars and coins:
- Price inefficiency: Gold jewelry is an ineffective investment option because of the loss in value on resale. It has high making charges, which typically ranges between 6-14% of the cost of gold (and may go as high as 25% in case of special designs). An additional 3% is levied as GST charges, which are irrecoverable.Gold coins and bars also come at a significant premium of about 5-15% over the gold price. The additional GST paid remains irrecoverable on sale. Also, the lower the denomination you purchase, the higher is the premium.
- Lack of Purity: When buying physical gold, purity is always a question. In a 2007 Bureau of Indian Standards survey on gold purity of 22-carat gold samples, 90% of samples failed against the purity declared.
- Risk of Theft: Storing gold can be a challenge both in terms of space and security. This makes it prone to theft.
Why invest in Gold ETFs instead:
Increasing awareness of the drawbacks of physical gold as an investment option has made people switch to Gold Exchange Traded Funds (ETFs). The ~Rs.7800 crores of inflows that Gold ETFs have received this year as of September end is proof of that.*
Here are the top reasons:
Gold ETFs are mutual funds that invest in physical gold
Each & every ETF unit is backed by 24 carat physical gold, held in secure vaults, and is completely insured
Generates returns in line with the returns of physical gold
You do not spend money on making charges or high premiums making it more cost-efficient
Transfers you the benefit of wholesale purchase prices and GST credit into the scheme, adding to your returns
Traded on the NSE and BSE close to the market price of physical gold, with a thin difference between buying and selling price
Offers you a way to participate in the gold market at low denominations of 1/2 gm
Brings you transparency as it is regulated by SEBI
*Source: World Gold Council
Why invest in Quantum Gold Fund (ETF)?
Assurance on purity of gold:
Pure gold of 0.995 finesse or 24 carats, sourced from London Bullion Market Association accredited refiners along with the refiner’s certificate matching the serial number on the bar
Imported through banking / authorized channels held in secure accredited professional vaults
Thorough validation of statutory documents such as Customs invoice, Bill of Entry, Master Airway Bill, Purity Certificate, etc., - is made, establishing the authenticity of gold
In addition to a robust purchasing process, Quantum regularly undertakes a purity test for all the gold held under Quantum Gold Fund ETF. The test is conducted by an independent materials testing laboratory using XRF technology which measures the chemical composition of each and every gold bar.
This first of its kind initiative in the industry, provides assurance that all the gold held by the Quantum Gold Fund ETF is indeed 24 Carat pure gold.
Access to the latest gold market insights, columns and monthly outlooks:
Though physical demand for gold could be muted this festive season on account of economic distress, investment demand for the precious metal fueled by Covid-19 and the policy response to it is expected to stay strong, powering prices up. For more information, refer to our recent articles on Gold:
Gold ETFs Set a New Record Globally - Invest Now
Is it Still a Good Time to Invest in Gold? Chirag Mehta Answers
Will Gold’s dream run last through 2020?
Keep up your spirits this Diwali, and make the smarter choice when investing in gold.
Disclaimer: The views expressed here in this Article / Video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The Article / Video has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of the Article / Video should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments. None of the Quantum Advisors, Quantum AMC, Quantum Trustee or Quantum Mutual Fund, their Affiliates or Representative shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary losses or damages including lost profits arising in any way on account of any action taken basis the data / information / views provided in the Article / video.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.