Best Way To Earn Regular Income From Gold | Passive Income Strategy

Best Way To Earn Regular Income From Gold

Whether you’re someone just starting out in their career or an established entrepreneur with a handsome net worth, most financial advisers would recommend having a diversified portfolio of investments. Amid stubborn inflation and a volatile stock market, this makes even more sense. While it may not be something they think of right away or even something they’re currently invested in gold can actually be a good alternative, particularly for those looking for some consistency and stability. The benefits of investing in gold, one of the oldest known to man, are significant and multiple. Amid the current economic environment, however, below are timely reasons to act now.

Why Should You Invest in Gold? | Best Way To Earn Regular Income From Gold

Gold acts as a hedge against inflation

Investing in gold could potentially soften the blow of inflation by acting as a hedge. Gold has historically been an excellent hedge against inflation, because its price tends to rise when the cost of living increases. Over the past 50 years investors have seen gold prices soar and the stock market plunge during high-inflation years. Moreover, gold is seen as a good store of value so people may be encouraged to buy gold when they believe that their local currency is losing value.

Deflation Protection

Deflation is a period in which prices decrease, when business activity slows and the economy is burdened by excessive debt. During the Depression, the relative purchasing power of gold soar while other prices dropped sharply. This is because people chose to hoard cash, and the safest place to hold cash was in gold and gold coin at the time.

Geopolitical Uncertainty

Gold retains its value not only in times of financial uncertainty, but in times of geopolitical uncertainty. It is often called the “crisis commodity,” because people flee to its relative safety when world tensions rise; during such times, it often outperforms other investments. For example, gold prices experienced some major price movements this year in response to the crisis occurring in the European Union. Its price often rises the most when confidence in governments is low.

Gold diversifies your portfolio

The key to diversification is finding investments that are not closely correlated to one another; gold has historically had a negative correlation to stocks and other financial instruments. Recent history bears this out:

• The 1970s was great for gold, but terrible for stocks.
• The 1980s and 1990s were wonderful for stocks, but horrible for gold.
• 2008 saw stocks drop substantially as consumers migrated to gold.

Properly diversified investors combine gold with stocks and bonds in a portfolio to reduce the overall volatility and risk.

What Are The Gold Investment Options in India ? | Different ways to invest in gold

There are two ways of doing this. The traditional way is purchasing gold jewelry from a trusted gold jewelry shop. However, one needs to be careful about the making charges, purity, safety and quality while buying.

To overcome the limitations of physical gold, you can opt for the digital route which includes investments such as Digital Gold, Gold ETFs, Gold Mutual Funds, and Sovereign Gold Bonds. The following is a short description of each of these investment options:

1. Digital Gold: These can be purchased through various apps in denominations starting from 1 gram onwards.
2. Gold ETFs: Gold Exchange Traded Funds are traded on stock exchanges just like shares and primarily feature Physical Gold and stocks of Gold mining/refining as the primary underlying assets. A Demat (Dematerialised) Account is mandatory for investing in Gold ETFs.
3. Gold Mutual Funds: These are mutual funds managed by various asset management companies (AMCs) that follow a fund of fund structure and primarily invest in Gold ETFs.
4. Sovereign Gold Bonds: These bonds are periodically released by the Reserve Bank of India (RBI) and available for purchase through leading public and private sector banks. While returns are pegged to price of gold and guaranteed by GOI, they actually do not have physical gold as an underlying asset.

Comparison of Returns and Costs of Gold Investment Options

In case you are opting for gold as an investment, returns generated from the investment are inversely correlated to the cost of making the investment. The following are the costs associated with each investment:

Physical Gold

• Design/Making Charges (10%)
• Insurance/Storage charges (3% to 4% annually)
• GST (3% of purchase price)

Digital Gold

• GST (3% of purchase price)
• Spread (approx. 6%)

Gold ETF

Total costs of 0.5% to 1% annually inclusive of

• Expense Ratio
• Demat Account Charges
• Brokerage

Gold Mutual Funds

Total costs of 0.6% to 1.20% annually which include:
0.5% to 1% as Gold ETFs + (0.1% to 0.2% for managing the Gold )

Sovereign Gold Bonds

No such expenses

Best Way To Earn Regular Income From Gold | Is it worth investing in sovereign gold bonds?

Since late 2015, Sovereign Gold Bonds ( SGB ) guaranteed by the government of India has emerged as a veritable investment options for individual investors. Sovereign gold bonds have some distinct features which are not available in other forms of gold investments. Here is why you should invest in Sovereign gold bonds

• There is no goods and services tax (GST) levied on sovereign gold bonds, unlike gold coins and bars. When you buy digital gold, you need to pay 3% of GST just like in the case of buying physical gold. Also, there are no making charges on SGBs
• Bonds will be tradable on stock exchanges within a fortnight of the issuance on a date as notified by the RBI.
• The investors will be compensated at a fixed rate of 2.50 per cent per annum payable semi-annually on the nominal value. The 2.5% interest makes this option attractive because unlike physical gold, investors earn a passive income on their gold, which is directly credited to the bondholders’ accounts. And this passive income you get apart from the matured return value that you get in the end.
• The capital gain on the maturity amount of these bonds is completely tax exempt making them attractive for long-term investors.

Things to Know Before Investing in SGBs | Best Way To Earn Regular Income From Gold

The series are issued with a fixed tenor of eight years, although RBI provides an early redemption option after five years from the issue date. Redemption is then allowed on coupon payment dates. Also, as these bonds are tradable on stock market exchanges, you can sell through demat accounts in emergencies. But liquidity of the particular series will play a pivotal role in determining the value that bondholders sell the securities for. In short, If you try to sell a bond on the stock exchange, you have to sell it at a lower i.e., discounted rate. But, if you remain invested until maturity, you can get the final market price directly from the RBI.

Know more about SGB here : https://www.rbi.org.in/Scripts/FAQView.aspx

Final Takeaway | Best Way To Earn Regular Income From Gold

Each type of investment comes with its flaws and powers. Investment in gold should be made carefully just like any other investment option keeping all the limitations in mind. SGBs are designed to facilitate gold investment. It also provides tax benefits on maturity, but it is not designed for trading. Therefore, most people who buy these bonds have a long-term vision in mind while investing in these instruments.

Read Next : 5 Golden Rules Of Investing ! (https://thebrightdelights.com/5-golden-rules-of-investing/ )

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