Planning to invest in gold? Here's how you can get the best returns.
Created on 09 Jun 2023
Wraps up in 5 Min
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Updated on 22 Jun 2023
If you are familiar with the stock market, you must be no stranger to the market’s volatility over the year. Global economic turmoil and uncertainty in the stock market have led to multiple investors relocating their portfolios into alternative asset classes like gold. Many experienced investors like Nikhil Kamath of Zerodha have started allocating 20% of their portfolio to gold. Why is everyone bullish about gold this year?
1. Colossal central bank purchases, aided by vigorous retail investor buying and slower Exchange Traded Funds (ETFs) outflows, lifted annual gold demand to an 11-year high. Central banks bought nearly $70 billion of gold in 2022, hitting an all-time high for any year since 1950.
2. RBI has started buying gold, purchasing 10 tonnes of gold in March 2023.
3. Experts predict gold prices to touch the ₹70,000 per 10 gms mark in 2023. Currently, gold prices are trending at ₹63,000, which is already 16.6% higher than its price in January 2023.
Gold has been a safe haven for investors for a long time. Stability & ability to withstand economic crises are the major reasons why investors choose gold for portfolio diversification.
Now that we have established gold’s outlook for the year let's discuss where to invest in gold so as to get the best returns. You must be familiar with gold investment options like digital Gold, Gold ETFs & SGBs (which give you extra 2.5% returns on top of gold price appreciation). However, in this article, we will talk about an instrument that allows you to grow your gold with an extra 5% return in gold grams every year.
How to get the best returns on Gold?
What is best way to invest in Gold? SGBs(Sovereign Gold Bonds).
Gold leasing is a practice in which one can invest in gold & lease it out to jewellers. These jewellers use the gold as working capital & pay interest to the investors in the form of gold grams. Earlier, gold leasing existed only in the offline markets & was accessible only to HNIs (High Networth Individuals) who wanted to invest in gold and get extra returns. This required kilos of gold to get started.
With the arrival of digital gold investment apps like Gullak, even retail investors can now take the benefit of the extra returns from gold leasing.
Which apps provide gold leasing options?
A few digital gold investment apps like Gullak, Jar & Safegold provide the option to invest in gold via gold leasing. Both Jar & Safegold provide investors with extra 3.5% returns. Gullak provides its investors with an additional 5% return on top of Gold’s annual returns. Here are some of the key features of the gold leasing apps if you wish to invest in gold & earn additional returns-
- You get the benefit of extra 3.5%-5% returns every year on top of gold price appreciation.
- The extra returns are in the form of gold grams, so your returns also grow.
- You get the chance to beat returns from all other gold investment assets. Get up to 16% returns p.a: 11% average gold price appreciation p.a + additional 5% every year(in case of Gullak Gold+)
- No lock-in periods- Pause & withdraw anytime with apps like Gullak
- Your investments are also protected by a 100% bank guarantee, ensuring additional safety.
The Bottom Line
The global scenario, financial experts & gold trend this year suggest that 2023 might be the year of gold. While stock markets are struggling to give 7-8% returns this year, it might be a good time to explore gold leasing.
1. What is gold leasing?
Gold leasing is a new-age investment option for people who want to invest in gold & earn additional returns. With apps like Gullak, investors can lease their gold to India’s biggest jewellers. These jewellers pay the investors with additional 4-5% returns in the form of gold grams itself.
The 5% returns from gold leasing, along with Gold’s annual returns of 11%, make it a 16% asset class.
2. Gold leasing vs SGB- Which is better?
Returns: SGBs provide you with a fixed simple interest of 2.5% p.a on the principal amount invested. At the same time gold leasing gives extra 4-5% returns (compounded) on top of your gold. In the case of gold leasing, your extra returns are in the form of gold grams, with SGBs, your returns are in the form of INR. Hence, when you invest in gold leasing, the value of your interest also grows.
Lock-in: When you invest in gold via SGBs, there is a lock-in period of 8 years involved. Withdrawing pre-maturely leads to selling in the secondary markets at discounted rates of 6-7%. Gold leasing via apps like Gullak Gold+ doesn’t come with any lock-in periods.
1. SGBs are tax-free. However, withdrawing them before 8 years will disqualify you from the tax benefits. In this case, you’ll have to pay 20% capital gains tax.
1. A long-term capital gains tax of 20% is applicable on the gold price appreciation to adjust according to inflation.
2. The extra returns you get when you invest in gold through gold leasing are taxed according to your income tax slab.
Upon comparing post-tax returns from Gold leasing with SGBs, returns from gold leasing beat SGB returns across all years. This is mainly due to the benefit of compound interest you get when you invest in gold using gold leasing.
3. How is safety ensured in the case of gold leasing?
Apps & platforms ensure certain criteria to ensure the safety of investors who want to invest in gold via gold leasing.
1. Checks for creditworthiness, experience in the market and annual turnovers are taken into account before onboarding jewellers for gold leasing.
2. 100% bank guarantees are taken on the leased quantity to ensure the security of the investments made.
4. Gold has already given 20% returns in the last 1 year. Is this a good time to invest in gold?
Due to continuous FED(Federal Funds Rate) rate hikes & central banks stockpiling tonnes of gold, demand for gold has been high throughout the year. This has been the major reason for stellar gold returns across 2023. Based on current macroeconomic problems, the situation is expected to stay the same or worsen throughout the year. Many financial experts are predicting gold prices to touch ₹70,000/10gm before year-end. However, that being said, one must do their due diligence before investing a bulk amount in gold. Experts from the World Gold Council generally recommend allocating a 15% portfolio to gold.
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