Gold, Guest Blog, Knowledge

What is a Gold Investment Scheme?

A gold savings scheme is quite similar to a Recurring Bank Deposit. Just the way people deposit money in their RD account, similarly in a gold investment scheme, investors essentially deposit a fixed amount month on month for a specific tenure. However, that’s where the similarity ends.

Unlike an RD, in the case of a gold investment scheme, the end objective is purchasing gold. At the end of the tenure, the investor can use that amount to buy gold for that aggregate amount as per the prevailing prices. Also, unlike a typical RD plan, the investor does not get any interest on the amount deposited. Several gold investment schemes in India compensate the investor by offering a complete or partial discount on the last installment to make good for the loss of interest.

Why Invest in Gold?

Gold has been one of the most popular investment options among Indians since time immemorial. People view gold as one of the safest investment options. And gold, too, has never disappointed its investors. Barring some short intervals of time, the value of always appreciated. And the demand for gold continues to increase, unchanged.

For those looking for a safe investment and have a long-term plan, investing in gold is one of the best choices. Investors can invest their hard-earned money for the short-term or long term according to their needs. 

How Does a Gold Investment Scheme Work?

To understand how gold investment works, let’s take an example.

Aditya, aged 36 years, is a school teacher working in a private school. He wants to buy gold worth about 1 lakh after one year. So he starts investing in a gold investment scheme that requires him to pay Rs. 8,000 every month. As per the terms of the plan, Aditya makes payments of Rs. 8,000 for 11 months, and gets a 100% discount on the last installment.

This way, he pays Rs. (8,000 * 11) = Rs. 88,000 and gets a discount of Rs. 8,000. And at the end of 1 year, he can buy gold worth Rs. 96,000. The benefit he got by not paying the last installment compensates Aditya for the amount of Rs. 88,000 for 11 months. 

Gold Investment Schemes – Features & Benefits

As illustrated in the above example, a gold investment scheme allows investors like Aditya to save and then utilize this fund to buy gold, supporting the financial entity.

The benefits of a gold investment scheme are given below:

1. With a gold investment scheme, a person can enjoy the benefits of an RD while maintaining their ultimate motive of investing in gold. 

2. It allows middle-class investors to make small investments and still fulfill their dreams of buying gold.

Top Gold Investment Schemes in India

Digital Gold

For those looking for a safe investment and have a long-term plan, investing in digital gold is one of the best choices. Investors can invest their hard-earned money for the short-term or long term according to their needs. Buying digital gold is as safe as physical gold, in fact, better. There are several benefits of purchasing digital gold. 

Digital gold is genuine with an assurance of purity as high as 99.5%. An investor can exchange digital gold for physical gold or jewelry and bullion. Investors are earning the rate of interest on their deposits. 

Multi-commodity exchange is one of the ways to trade in Digital Gold. It allows investment in commodities gold, silver, among others. Many investors invest here for the long term. Anyone can start with these options by purchasing 1gram of gold also. 

Gold Bonds

Also called Sovereign Gold Bonds (SGB), gold bonds are issued by the Reserve Bank of India (RBI) on behalf of the government. Introduced under the Gold Monetization Scheme in 2015, each bond represents 1 gram of gold, and the investor can invest digitally. 

In addition to the changes in gold rates, these bonds have an attractive interest rate of 2.5% per annum, which is paid semi-annually by the RBI, adding to the yield. These bonds have a time interval of eight years, and the RBI also provides a redemption option after the fifth year.

Gold Saving Funds

Gold Saving Funds are one more way to invest in gold in digital form. One can invest in these funds and accumulate gold without having to buy gold in physical form. These funds invest in Gold ETFs and provide the investor freedom from worrying about keeping the gold safe and secure. These funds are easy to liquidate compared to physical gold.

Gold ETF

Exchange-traded funds are mutual funds; can buy their unit from Stock exchanges. An investor can invest in digital gold in small quantities and keep it in a Demat format. That is one of the safe investments with 99.5% purity. Even students are investing in these ETFs in small quantities because of future growth. 

Jewelery

To prepare themselves for the marriage of their children, many people start investing in gold jewelry at an early stage. However, this is not the preferred mode of investing in gold. That’s because the jewelry designs and patterns are subject to change. And, if you decide to redesign the jewelry, you end up losing gold as damages.

Physical Gold

For ages, people have been investing in gold. Traditionally, this investment in gold used to be in the physical gold, in the form of coins, biscuits, bars, or bullions. However, this form of gold investment requires investors to make arrangements for the storage and safety of the physical gold.

Gold Certificates 

A gold certificate is another gold investment scheme that involves issuing a certificate to the investor instead of physical gold. The gold certificate has a historical meaning as paper currency. In the current scenario, it is also a great way to invest in gold.

How to Choose the Best Gold Investment Scheme?

Before choosing the best gold investment scheme, one can carefully evaluate their investment objective, investment term, and risk appetite. Once that consideration is done, one must take understand the following:

  1. Key risks involved in gold investment: Every investment consists of some risk. So, before investing, one must carefully study the risk factors involved.
  2. The minimum investment required: Every investment requires some minimum amount that has to be put in. 
  3. Comparing the cost of investment and return on investment: When it comes to gold investment, the returns generated on an investment are inversely proportional to the investment cost. That means a lower price of investment leads to higher returns and vice versa. 

Digital Gold v/s Other Gold Investment Schemes

As mentioned above, there are various gold investment schemes. While each gold investment scheme has its pros and cons, given below are some essential differences between Sovereign Gold Bonds, Gold ETF, and Digital Gold:

Liquidity

While SGB and Gold ETF are traded on the stock exchange, they can be sold or exchanged only between 9:00 am and 3:30 pm. While digital gold can be bought or converted into cash anytime, 24/7. These limited hours of investing in SGB and Gold ETF restrict the time available for liquidating the investment.Lock-in Period: In the case of SGB, there is a minimum lock-in period of 5 years. That means, once a person invests in SGB, they cannot sell it before five years. If a person needs funds or decides to sell his holdings before maturity, they have to pay a massive fee as a penalty. However, in the case of Digital Gold, there is no lock-in period. A person may buy digital gold today and sell it the very next day without any penalty.

Holding SGB or Gold ETF requires opening a Demat account as a pre-condition. On the other hand, people with digital gold do not need any Demat account during the buying or selling process.

Fees

In the case of Gold ETFs, there is an annual maintenance fee that the investor has to bear. This varies from 0.5-1% of the total value. In the case of digital gold, there is no such fee other than a one-time levy of 3% GST.

Investing in Digital Gold with OroPocket

OroPocket is a 100% asset-backed banking service. With no hidden charges, OroPocket offers transparent dealings. A person can buy digital gold as low as Re. 1 and avail the all the customer-friendly services of OroPocket. The company charges only a flat fee of 0.25% on all transactions. There are no additional storage fees or insurance charges. 

The Blockchain technology used by OroPocket lets the investors verify the integrity of their investments. The security vaults located in UK, Switzerland, Singapore, and India are 100% safe, secure, and insured. Some independent auditors audit these assets daily to assure asset-backing on a 1:1 basis.

Conclusion

Gold investment schemes are a good way for first-time and small investors to fulfill their dream of investing in gold. One can select among the various gold investment schemes in India and invest in any one of them, depending upon their investment objectives and risk appetite.

FAQs

Q1: What are the best gold investments schemes to invest in?

There are various gold investment schemes in India. The best schemes you can invest your money in are – OroPocket Gold Auto-investment Plan, Tanishq Gold Harvest Scheme, Malabar Gold, and Diamonds Smart Buy Plan, and Jos Alukkas Easy Buy Gold Purchase Plan.

Q2: What are the government-backed gold schemes?

The Sovereign Gold Bonds (SGBs), issued by the Reserve Bank of India, is a gold investment scheme in India, backed by the government.

Q3: Is digital gold is a good investment?

Digital gold ensures customers get gold of the highest purity at the best prices. There are no safety issues, and liquidating digital gold is easy. And given the current health concerns, where people avoid going out and touching articles, digital gold is the best investment.

Q4: How are digital gold investment schemes different from other gold investment schemes?

Ans: Compared to other gold investment schemes, digital gold investment schemes are more convenient, safe, flexible, and easily convertible into cash. While in most schemes, any transaction is possible only within working hours, digital gold can be bought and sold anytime, anywhere, 24/7.

Q5: How does digital gold works?

To buy digital gold, an investor needs a small amount to start investing in gold. The investors can make an account and purchase gold worth the money they have. The financial entity buys gold from the open market at the rates prevailing that day and keeps it safely in digital vaults. When the investor wants, he may sell the gold to the same entity or get physical delivery.

Q6: Where to buy digital gold?

Ans: There are various platforms where one can buy digital gold. A customer may purchase digital gold through OroPocket, PayTM, PhonePe, or even government-approved MMTC.