The Ultimate Guide to Investing in Gold Stocks in India

Investing in Gold Stocks in India

Since the beginning of the stock market, gold has been believed to have a positive association with inflation. Since its discovery during prehistoric times, gold has been a prized commodity and store of wealth.

Gold is a one-of-a-kind asset: it's very liquid while also being scarce; it's a luxury item as well as an investment. No one is liable for gold, and there is no counterparty risk. As a result, gold stock investment can be added to your investment portfolio. Existing gold may become more valuable when annual gold production declines and demand rises. Because exploration funds are decreasing and mining expenses are rising, very few gold mines are now being discovered.

In this article, we will briefly explore why one should invest in gold stocks.  What is a gold stocks investment, and why should one consider them?

What are Gold Stocks?

Let's start with a definition of gold stocks.

Gold stocks are the shares of gold-focused enterprises and funds. Mining businesses that dig up and sell gold make up the majority of the industry. It also comprises royalty enterprises and gold streaming that serves as industry middlemen. Those firms pay the mining business an advance fee in exchange for a proportion of the mine's earnings.

Gold Stocks are purchased in exchange for profits in the form of dividends. These are shares that a person owns in a gold company, such as gold ETFs, gold mining company or gold mutual funds. You invest in gold stocks with the purpose of owning a piece of the company, and you earn a cut of the profits depending on your investment. The returns on gold stocks will be influenced by market conditions to some extent and will be determined by the current gold rate.

Among gold stock investments such as royalty and gold streaming, gold stocks have the best return potential. Even in low-price circumstances for gold, shares of a fundamentally sound gold firm maximize returns on invested capital and are devoted to shareholders.

Investing in stocks has to be carefully done, and gold stocks are no exception.

What are the Types of Gold Stock Investment?

Now that we understand what gold stocks are, let us look into some of the ways you can invest in gold stocks.

Gold Mining Companies

Investing in mining stocks is one option to invest in gold. You are essentially investing in a mining firm, and the price of gold mining stocks is determined by the gold industry and the firm's success. Selecting a company with a solid track record and credit worthiness should assist you in making a decision.

There are approximately 300 publicly traded gold mining firms, although practically all of them are outside India.  Mutual funds that buy shares in global stocks are one way that an Indian citizen can invest in them.

Gold mining comes with its own set of risks; keep in mind that it's a risky business, which should be factored into your decision.

Gold ETF Stocks

If you want to invest in gold stocks, gold ETFs (Exchange Traded Funds) are the best option. A gold ETF is a physical gold substitute. These are physical gold units, with each unit equating to one gram of gold. Owning gold stocks in the form of ETFs. It carries a lower risk, with the option to sell the stocks in the market. ETFs can be converted to physical gold if required.

It's not exactly a gold investment. Instead of acquiring real gold, an investor purchases a specified percentage of the communal vault. The value of the ETFs is proportionate to the price of gold. ETFs is a more reliable and cost-effective way to invest in gold stocks, particularly for those who do not have the desire or time to analyze specific gold companies.

These funds, which use gold as the investment product, are traded on the major stock exchanges: NSE or BSE. Transparency is a significant advantage of this type of fund. The price at which you purchase is very close to the current gold price. Gold stock investment through ETM can be purchased in a lump sum or at frequent intervals.

Investing in Exchange Traded Funds is as simple as four steps. Follow these instructions below.

How to Invest in Exchange Traded Funds?

  • Open a Demat and trading online account which is available on most of the platforms.
  • Add your personal details such as identification and address verification, E.g., PAN card.
  • Once you've opened the account, choose a gold exchange-traded fund (ETF) and purchase a unit.
  • The units you purchased are credited to your Demat account.

List of top ETF companies in India

Here is a list of Top Exchange Traded Funds companies in India that can help you with your investment.

  • SBI Gold ETF
  • Birla Gold ETF
  • Invesco G-ETF
  • Kotak MF-GETF
  • HDFC Gold ETF
  • UTI - Gold
  • Nippon ETF Gold
  • Axis Gold ETF
  • IPRU Gold ETF

Gold Mutual Funds

Gold funds are another option if you are looking for a safe gold stock investment plan. They are mutual funds that invest in gold in many forms, including real gold, shares of gold mining firms, and gold exchange-traded funds (ETFs). Gold mutual funds invest in gold reserves both directly and indirectly. Investing in a gold fund is more convenient than holding its physical form.

Gold should be included in your financial portfolio as a means of diversification as it can bring long-term stability to your wealth.  You can begin to invest in gold stocks with as little as Rs. 1000. These funds can be purchased straight online or through intermediaries.

Who are the Top Gold Mutual Funds in India?

To build a gold portfolio without needing to buy gold physically, gold mutual funds pose as the best option. These funds invest in gold stocks or ETFs and offer the added benefit of avoiding the costs, risks, and liquidity issues associated with real gold.

To get greater returns, look for a Gold Mutual Fund with the lowest expenditure ratio.

  • Kotak Gold Fund
  • SBI Gold Fund
  • Axis Gold Fund
  • HDFC  Gold Fund
  • Nippon India Gold Savings
  • Quantum Gold Savings Fund
  • ICICI Prudential Regular Gold Savings Fund (FOF)
  • Aditya Birla Sun Life Gold Fund
  • Long-term investments in gold mutual funds are those that have been held for more than three years. Long-term capital gains are the results of this (LTCG).
  • Gold mutual funds are extremely liquid, as they allow for easy investments and redemptions at any time, with proceeds reflecting in bank accounts within three days.
  • Only the purest (99.5%) are selected and invested in gold mutual funds.
  • Short-term capital gains (STCG) are taxed at the slab prescribed rate to the investor, whereas long-term capital gains (LTCG) are taxed at a 20% rate.
  • Your gold mutual fund investments should also be flexible in the sense that you may want to stay invested when the risk is higher. Still, once the risk is lower, you should shift your assets to higher-performing asset classes, as gold typically performs well when markets are uncertain.

Why Invest in Gold Stocks?

There are numerous advantages to purchasing gold stocks rather than physical metal. The key attraction is that these businesses can provide leveraged gold price upside. When gold prices rise, businesses can expand their gold production and sales.

An increase in the price of petroleum products benefits oil refining companies. An increase or drop in the price of gold benefits gold mining enterprises, and everyone who owns a share of stock benefits from it.

You must select a gold stocks investment that is most likely to be effective, as not all gold stocks can match gold's revenue growth. While there are many ways to invest in gold, gold mining stocks are a good option if you want to explore beyond the precious metal itself and into related industries.

Is Gold Stock Investment a Good Option for me?

People have embraced gold stock investment as a safe haven in a period of recession for ages. It's no surprise that gold is such a popular investment option. The following are the primary reasons for gold's effectiveness as a wealth protector:

  • Because gold's price tends to rise when the cost of living rises, it has historically been a good inflation hedge. Cash and Treasury yields are lowered by inflation, making them less appealing as safe-haven investments, prompting many investors to turn to gold.
  • There are still geopolitical risks to be aware of. In the current pandemic situation, it is thought that gold, which is freely traded, will benefit greatly if the world's reserve currency suffers a confidence crisis. As a result, now is unquestionably the best time to invest in gold.
  • The global gold supply is diminishing.  Existing gold may become more valuable when annual gold production declines and demand rises.
  • When you have a steady salary, saving money for the future is crucial. However, if you choose real estate as your investment, you may not be able to invest small sums of money. Instead, invest in gold, which does not demand a large sum of money but promises to provide significant returns in the future.
  • In the market, gold is easy to buy and sell. You can buy actual gold from any jewellery store in your neighborhood, but find a reputable vendor with a hallmark and a buyback policy, so you don't have any problems selling it.

Those considering investing in gold stocks should take their time. Researching the gold stock market will assist you in predicting when the best time to buy gold stocks will be. When buying gold stocks, take into consideration that prices will constantly change; if you buy when the price is low, and it drops further lower, don't be worried. Gold has declined in price in the past, but it has always risen.

Further, it is not advisable to put all of your money into one sort of investment; it may be a good idea to use gold as a diversified portfolio and restrict your gold investments to no more than 10% of the overall value of your investment portfolio.


Should you invest in Gold ETFs or Gold Mutual Funds?

Gold ETFs and gold funds both have advantages and disadvantages, keep track of gold prices. Before making a decision, one might compare the performance of ETFs and gold mutual funds.

What is the lowest bit that can be invested in a gold mutual fund?

The minimum amount to invest in a gold mutual fund is Rs.1000.

Is it possible to convert a gold mutual fund to physical gold if necessary?

No, you cannot convert a gold mutual fund to actual gold. However, you can convert gold ETFs to physical gold as a gold stock investment.

What is the procedure for redeeming a gold exchange-traded fund (ETF)?

Gold ETFs can be sold on the stock exchange via a broker with the help of a Demat account. You must advise your depository participant (DP) to shift the required number of units to the fund house's DP account, as well as contact the fund house and file a redemption request.

In India, how can I invest in gold stocks?

The start to invest in gold stocks is by opening a Demat account through a stockbroker. You can also read the above article for more information.