As Dhanteras dawns, the timeless tradition of purchasing gold in India shines brighter than ever, marking the onset of Diwali festivities. With the current price of 10 grams of gold at Rs 78,245, according to the Indian Bullion Jewellers Association (IBJA), the allure of gold coins persists, especially among those seeking a blend of cultural reverence and financial stability. While high prices are no deterrent for devotees of the yellow metal, it’s essential to explore the pros, cons, and alternatives to buying gold coins from banks.
Gold Coins
Major banks like State Bank of India (SBI), HDFC Bank, Bank of Baroda, ICICI Bank, and Union Bank of India (UBI) are retailing gold coins, approved by the Reserve Bank of India (RBI), offering investors an opportunity to purchase 24-karat gold coins. These coins come in various denominations-2 grams, 5 grams, 8 grams, and 10 grams-each embossed with the bank’s logo, signifying authenticity and quality.
Key Advantages of Bank-Sold Gold Coins
Gold coins purchased from banks bring reliability, quality assurance, and ease of access, all within a highly secure framework. Here are some of the primary benefits:
Purity and Packaging: Banks ensure the purity of their gold coins with a 24-karat guarantee and tamper-proof packaging, providing added peace of mind. The coins are often accompanied by a purity certification, assuring buyers of their investment’s worth.
Convenient Accessibility: Many banks allow gold coin purchases online via internet banking or mobile applications, while also facilitating in-branch purchases. As a bonus, some banks offer the convenience of buying gold coins without being an account holder. For instance, Union Bank of India allows both customers and non-customers to buy gold coins, though cash payments are limited to purchases under Rs 50,000, with larger transactions requiring cheques or demand drafts.
Market-Linked Pricing: Bank-sold gold coins are priced based on current market rates, allowing customers to buy coins that are marked to daily prices. However, these prices also come with a premium over the spot rate, factoring in purity guarantees, packaging, and bank margins.
Despite these benefits, investors must consider key drawbacks when purchasing gold coins from banks, especially if they are purchasing solely as an investment.
The Price Premium
While the purity and reliability offered by banks add value to gold coin purchases, they also contribute to a higher cost. This premium is often attributed to the coin’s purity, packaging, and added security features. However, this means investors pay considerably more compared to buying gold from other sources.
Resale Restrictions
One of the most notable challenges of buying gold coins from banks is the lack of a buyback option. According to RBI regulations, banks are not permitted to repurchase gold coins, even those initially sold by their branches. As a result, investors looking to liquidate these coins may find themselves at the mercy of local jewellers, who often purchase at a discount relative to the bank purchase price, further reducing potential returns. This limitation in liquidity can be particularly disappointing for those seeking a flexible, easily sellable asset.
Investment Alternatives to Physical Gold Coins
Given these limitations, many investors are exploring alternate avenues for investing in gold, from digital platforms to bonds. Here’s a closer look at some of the most popular options available today:
Gold ETFs (Exchange-Traded Funds)
Gold ETFs provide a hassle-free way to invest in gold without physical possession. These funds, traded on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE), allow investors to buy and sell gold-backed securities at market rates during trading hours. ETFs offer flexibility, lower transaction costs, and secure investment in gold without the need for storage or insurance.
Factors such as fund size, liquidity, tracking error, expense ratio, and premiums or discounts relative to net asset value (NAV) should be considered when selecting a gold ETF. Additionally, they can be easily managed through a Demat account.
Digital Gold
For investors seeking affordability, digital gold offers a viable solution, allowing investments with as little as Re 1. This platform eliminates the need for physical storage, as purchased gold is kept in secure vaults managed by reputable institutions. Digital gold also offers liquidity, allowing investors to convert their holdings to cash or physical gold when needed.
However, it’s crucial to buy digital gold only from recognized providers, as the industry is not yet fully regulated, and standards can vary.
Sovereign Gold Bonds (SGBs)
SGBs represent a government-backed investment in gold without physical storage risks. These bonds provide a fixed annual interest of 2.5%, payable semi-annually, along with capital appreciation linked to gold’s price. However, with the government currently pausing new SGB issuances, the only way to invest in these bonds is through the secondary market, which may involve premium rates and lower liquidity.
As with any investment, investors should consider their liquidity needs and the potential premium when trading SGBs in the secondary market.
Investing in gold coins during Dhanteras is a cherished tradition, symbolizing prosperity and financial security for the year ahead. While bank-sold gold coins offer security, quality assurance, and purity certification, they also come with limitations, including high markups, restricted resale options, and limited liquidity.
Story first published: Tuesday, October 29, 2024, 11:08 [IST]
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Original news source Credit: www.goodreturns.in
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