GOLD AS INVESTMENT TOOL :

Gold is not just a precious metal to India, but a part of its culture. Fascination about the Gold in India is not within the wealthy family even it can be seen in the poor family. Traditionally it is in our culture, religion and even in day to day lives. In India gold is consumed as safety net for generations to come.

If you have funds to invest, it's important to understand why people invest in gold in the first place, so that you can make sure it's the right thing for you. Understand that gold mainly serves as a store of value and as an investment hedge.

Advantages of investing in gold :

1. Overcoming Inflation : Owning gold can protect you from inflation. Gold has historically been as excellent hedge against inflation, because it’s price tends to rise when the inflation or cost of living in a country increases.
2. Diversification : Gold can be another "string to your bow" when you seek to diversify your investment portfolio. Diversification is considered to be the best reason to own gold. This ensures sound financial management, and not putting all your investment eggs into one basket.
3. Protection : Gold is a sound means for protecting wealth over a long period of time. Investors of all levels of experience are attracted to gold as a solid, tangible and long-term store of value that historically has moved independently of other assets.
4. Security : During a period of civil instability, gold is a way to protect assets, it is portable, easy to hide, and can give you something to hang on to when everything else is lost.
5. Symbol of Prosperity : Culturally in India gold is seen as symbol of prosperity. People always try to purchase gold on eve of some religious occasion for their prosperity.
6. Liquidity : Gold can be easily converted into cash anywhere in the world. Aside from actual cash, the liquidity and universality of gold is unparalleled.

There are many different ways to invest in gold:

1. Buy gold directly : You can buy gold directly in the form of bullion or coins. You will then hold onto physical quantities of gold, which can be sold at a later date. It can feel good to have gold actually in your possession, but you need to be careful with it. The biggest downside is that you will have to pay to have it insured or stored.
2. Buy shares in a gold company : You can also purchase stock in a company that manufacture gold products in India. The value of the stock is going to be strongly correlated with the value of gold itself. You may also be paid dividends on your shares.
3. Gold Ornaments : You can invest in gold by purchasing ornaments from jewellery shops which are in general common in India as vehicle to purchase gold.
4. Invest in gold ETF : Gold ETF is an exchange-traded fund that specializes in investing in a range of gold securities. Such diversification can somewhat minimize your risk.

Disadvantages of investing in gold:

While gold can be a great investment for a number of reasons outlined above, be aware of the disadvantages before investing:

1. Gold doesn’t earn passive income : Other investments such as stocks and bonds may derive a portion of their value from passive income in the form of interest and dividends. However, the only return you can make on gold is when the value increases and you decide to sell.
2. Gold can create a bubble : In turbulent economies, many people start investing in gold, but when investors start to panic, gold can become overpriced. This, in turn, means that your investment could lose value once the price corrects itself. We have seen it in India in the year 2012 & 2013.
3. Need physical storage and insurance : If you choose to buy actual, physical gold, you will not only need to store it, but you will need to insure it as well. Otherwise, you won’t be able to replace it if it becomes damaged or stolen.
4. Cost of Storage : You have to shell out some money every year as storage and insurance charges for gold you are holding which may increase in future.
5. Capital gains tax : Long Term /Short Term Capital Gain Tax is applicable in case you sold your gold or gold ETF or gold MF as per capita gain tax rules of Income Tax Act of India.
6. Increases in gold value coincide with rupee devaluation : Many people argue that gold only increases in value when the rupee is devalued or inflation is strong. On the basis of this thought these people feel that net adjusted return of gold is not good enough to invest as asset class. 

New instruments of Gold Investment

        Prime Minister Narendra Modi launched three gold related scheme including, (i) first ever 'Indian gold coin' bearing Ashok Chakra, (ii) gold monetisation and (iii) gold bond schemes on 5th November, 2015.

INDIAN GOLD COIN - The Indian Gold  coin is part of Indian Gold monetisation program.The coin will be the first ever national gold coin will have the national emblem of Ashok Chakra engraved on one side and the face of Mahatma Gandhi on the other side.

The coins will be available in denominations of 5 and 10 grams. A 20 grams bar/bullion will also be available.

The Indian gold coin will be of 24 karat purity and 999 fineness.

All coins will be hallmarked as per the BIS standards.

The coins will be available in denominations of 5 and 10 grams. A 20 gram bar or bullion will also be available.

The tamperproof packaging and advanced anti-counterfeit features on the coin cover make’s it very safe and easily recyclable.

These coins will be distributed through designated and recognised MMTC outlets.

GOLD MONETISATION SCHEME

The GMS or Gold Monetisation Scheme will replace the existing Gold Deposit Scheme, 1999.

The depositor has to take the gold to the hallmarking centre where it will undergo purity test( percentage of gold).

The gold then will pass through a fire assay test where it will be melted.

Customers who agree to deposit the gold are not required to pay any fee and are provided with certificates by the collection centre.

The bank will open a gold savings account and the customer's account will be credited with an equal quantity of gold.

Interest rate on Medium and Long Term Government Deposit (MLTGD) are 2.25 per cent and 2.20 per cent, respectively.

The designated banks would accept deposit under MLTGD category on behalf of the central government.

The tenor of short term would be 1-3 years, medium term would be between 5-7 years and long term would for 12-15 years tenure.

The principal and interest of the deposit under the scheme will be denominated in gold.

The gold received under MLTGD will be auctioned by the agencies notified by the government and the sale proceeds will be credited to government's account held with Reserve Bank of India.

There will be provision for premature withdrawal subject to a minimum lock-in period and penalty to be determined by individual bank.

RBI will maintain the Gold Deposit Accounts denominated in gold in the name of the designated banks that will in turn hold sub-accounts of individual depositors.

GOLD BOND SCHEME

The Sovereign Gold Bonds will be available both in demat and paper form.

Investors can apply for the bonds through scheduled commercial banks and designated post offices. NBFCs, National Saving Certificate (NSC) agents and others, can act as agents. They would be authorised to collect the application form and submit in banks and post offices.

Know-your-customer (KYC) norms will be the same as that for purchase of physical gold. KYC documents such as Voter ID, Aadhaar Card/PAN or TAN /Passport will be required.

It will offer investors an interest rate of 2.75 per cent and a choice to buy bonds worth 2 grams of gold, up to a maximum of 500 grams.

These bonds will be issued in denominations of 5, 10, 50 and 100 grams of gold or other denominations.

Investors can also use the bonds as collateral for loan and sell it before its maturity since they would be listed and tradable on the exchanges.

The tenor of the bond will be for a period of eight years with exit option from 5th year to be exercised on the interest payment dates.

The interest earned on gold bonds would be taxable per the provision of Income Tax Act, 1961 (43 of 1961), and capital gains tax shall be levied as in case of physical gold.

The bonds can be bought by resident Indian entities including individuals, Hindu Undivided Families, trusts, universities and charitable institutions.