2.

1 OBJECTIVES
2.1.1 Investment
Gold is one of the most preferred investments in India. High liquidity and inflation-beating
capacity are its strong selling points, not to mention charm, prestige, and so on. Though there are
phases when markets witness a fall in gold prices, it won’t last for long and always makes a
strong comeback.
1. Why Should You Invest in Gold?
Safety, liquidity, and returns are the three criteria most conventional investors look for before
making any investment. While gold meets the first two criteria smoothly, it doesn’t perform
poorly at the last one either. Here is why you should invest in gold:

a. Investing in gold is worthwhile because it is an inflation-beating investment. Over time, the

return on gold investment has been in line with the rate of inflation.

b. Gold has an inverse relation with equity investments. For example, if the equity markets start
performing poorly, gold would perform well. Considering gold as an investment option in your
investment
2. How to Invest in Gold?
The ‘golden question’ here is – how does one invest in gold? Traditionally, it was by buying
physical gold in the form of coins, bullions, artefacts, or jewellery. However, there are newer
forms of gold investments nowadays, such as gold ETFs (exchange-traded funds) and gold
funds.

Gold ETFs are similar to buying an equivalent sum of physical gold but without the hassles of
having to store the physical gold. Hence, there is no risk of theft/burglary as the gold is stored in
Demat(paper) form. Gold funds involve investing in gold mining companies.

Let’s understand different ways of investing in gold from the following table:
 Gold
Investment in physical funds
No need for demat account
Market fluctuation directly
affects the price of gold
No additional charges other
than the physical gold itself
Risks of theft and burglary
associated with storing
physical gold
No paperwork required for
investing
Systematic Investment Plan
(SIP) not available
Best suited for conventional
investors
3. What are Gold Funds?
By investing in gold funds, you invest in stocks of companies operating in gold and gold-related
activities. Gold mutual funds also include silver, platinum, and other metals in their investment
Gold ETFs (Exchange
Traded Funds)
The investors buys a
proportionate value of gold
but not in a physical form
The investors needs a demat
account
Change in gold prices affect
that of gold ETF
Gold ETFs involve asset
management and brokerage
fees
Gold ETFs remove the burden
of trading gold in the physical
form
Paperwork required for
investing in gold ETFs
No SIP option
Best suited for investors who
have the required time and
skillset to trade
Gold Fund
The investment is made in bullions
and companies involved in mining
gold
No need for demat account for
investment
Change in gold price does not
affect gold fund directly
There’s a minimum charge to
manage the gold funds.
Eliminates the risk of theft/burglary
and buffers investments to
changing market fluctuations
Paperwork is required for
investing in gold funds
SIP available
Best suited for investors who
expect high returns by taking
calculated risks
basket. A mutual fund manager on behalf of an asset management company manages the gold
fund, unlike gold ETFs. They make use of the fundamental trading analysis to buy and sell
stocks to maximize returns for investors. Returns from gold funds depend on market conditions
to an extent.

Gold mutual funds eliminate the risk of returns substantially by distributing investments over a
wide range of investment options. In other words, mutual funds work on the principle of
diversifying, i.e. not putting all eggs in one basket. Investors need to weigh their risk appetite and
goals before choosing such a mutual fund.
4. Gold Investment vs Mutual Funds
particulars Gold Investment Mutual Fund

Definition Gold is a precious high-value Pools investors’ money in

metal that is liquid in nature
Management Investments are made and
managed by the investor
Risk Involved Physical carrying and storage
of gold involves high risks of
theft and burglary
Returns Gold does not pay any
dividends
equities, debts and other
market instruments to multiply
the money
Experts manage the investment
professionally to create wealth
and reduce risks
Investment in mutual funds can
be made with safe and secure
methods
Mutual funds yield substantial
returns to the investor

Investment Cost Taking an average cost of Mutual fund investment is

Rs.31,000 per 10 grams, one
needs to carefully think before
making an initial investment in
gold; considering the high cost
to begin investing
affordable and flexible. One
can begin investments from
Rs.1,000
2.1.2 Gold loan
The gold loan, also referred as a loan against gold, is a secured loan that a borrower takes from a
lender in lieu of gold ornaments such as gold jewelry. The loan amount sanctioned to you by
lenders is generally a certain percentage of the gold’s value. You can repay it through monthly
installment after which you get your gold articles back. Unlike other secured loans such as a
home loan or car loan, there are no restrictions on the end use of gold loans. So whether you
need to fund a wedding, family vacation or your child’s education, it is a great way to meet your
sudden money requirement. Moreover, a lot of private and nationalised banks along with NBFCs
offer gold loans at affordable interest rates.
Gold loan is similar to personal loan in meeting your immediate financial requirements, be it an
international education, marriage expenses, covering medical emergencies or any other personal
use.
 Quick Disbursal- Minimum documentation leads to faster processing of gold loan due to
its secured nature.
 Flexibility of Use- Since there is no monitoring of the end use, it gives you the flexibility
to use the loan for any type of expense.
 Secured Loan Type: You are not required to submit any other security/collateral to the
lender other than the pledged gold ornaments.
 Lower Interest Rate: Interest rates on gold loans are on the lower side when compared to
personal loan, since gold serves as collateral.
 Liquidate your idle asset: An idle asset, gold is seldom used for generating money. Hence
gold loan is the perfect solution to raise capital and use the fund when you require money
to meet your financial needs. It is also more secure in the confines of a bank’s or a
financial institution’s locker than your home.

1. What are the typical interest rates and processing fees?

Interest rates for gold loan varies from lender to lender and ranges from 9.24% to 17%. A
nominal processing fee ranging from 1-3% of the loan amount is also charged by some
lenders. It is always advisable to check and compare interest rate, processing fee, late
payment charges and pre-payment charges with the lender before going for the loan.

2. Which are the documents required to process loan application?

 Documents that are required to seek a gold loan vary from lender to lender. However, the
common list of documents includes: Passport Size Photographs, Identity proof (PAN Card,
Voter’s ID, Aadhar Card etc.) and Address proof (Passport, Driver’s License, Electricity Bill
etc.)

3. What is the gold loan tenure?

The prepayment period or gold loan tenure varies from one lending institution to another. It
usually ranges from 3 to 12 months. Depending on a case, some lenders even offer a longer
tenure or allow you to renew it in order to extend the tenure. Since the tenure of the gold loan is
shorter in comparison with other types of loan, make sure you repay the loan amount on time.
Defaulting on gold can lead to losing your gold articles forever.

4. How do lenders determine the gold loan amount?

Before approving the loan application, lenders evaluate the pledged gold’s purity and weight.
Based on it, the gold’s market value is determined based on its current rate, which further helps
in reaching the final gold amount that is to be sanctioned by lenders. Most lenders offer a gold
loan with a value up to 75 percent of the pledged gold’s market value. For instance, if your gold
is worth 2 lakhs, the loan amount sanctioned to you would be not more than 1.5 lakhs. Besides
the Loan to value ratio, loan amount also depends on various other factors such as tenure and the
borrower’s repayment capacity.

5. How can the gold loan be repaid?

How you can repay your gold loan depends on your lender. Most lending institutions let you pay
only the interest amount each month and the principal amount at the end of the loan tenure. You
can also choose to pay your gold loan through EMIs (Equated Monthly Instalments), which will
include both the principal and interest component of your loan.

6. What happens if I am unable to clear my dues by the due date?

Action taken on customers who default varies from lender to lender. Some lenders charge
interest for the time overdue, which is usually higher than the rate a customer pays for the loan.
Further default on loan payment will result in a notice sent to you, informing you of the time
within which you will have to clear your obligations. Non-payment of loan by the final notice
date can also lead to lenders auctioning your gold articles to recover their outstanding loan
amount.