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Alternatives of Physical Gold Explained - Part II

In the Last Article, we discussed two of the few alternatives of Physical Gold. Now you must observe that why I am specifying a few and not mentioning an exact number of alternatives.

It’s because there are many alternatives to Invest in Gold (directly and indirectly), but here I am mentioning only the near alternatives of Physical Gold and those options where anyone can Invest. This is because some of the alternatives are not accessible to normal investors and require a certain ticket size to invest in the vehicle. So here we discuss only those options that are near to alternatives of Physical Gold and also those that are available for all types of Investors. So, in the Last Article, we had briefly discussed Sovereign Gold Bonds and Digital Gold. Today I intend to discuss the rest. To read the previous part of this article, click here.

Gold ETF – Exchange Traded Funds

ETF (Exchange Traded Funds) are Investment Funds investing in Stocks, Commodities, and Bonds which are listed on Stock Exchange and are traded just like stocks on the Stock Market. Typically, ETFs are Mutual Funds but which are traded on the market, which means you can buy and sell these on the Market. Gold ETFs are Investment Funds dealing in Gold that tracks the Domestic Physical Gold Price.

Gold ETFs are based on gold prices and deals in gold bullions. Gold ETFs are just Digital Gold but as a Stock. One Gold ETF unit is equal to 1 gram of gold and is backed by Gold Bars of 99.5% purity. The fund closely tracks the benchmark (Domestic Price of Physical Gold) and there are no Entry or Exit charges like in Equity MFs, but there is an expense ratio and trading charges/brokerages plus you also require a Demat Account for investing in ETFs.

Gold Mutual Funds

Gold Mutual Funds are MFs that invest in Gold and related Investments. These are the mutual funds that invest in Gold ETFs, gold producing and mining companies, companies that are directly or indirectly related to mining or refining of gold. Gold Mutual Funds are managed with the objective of beating the Gold’s Rate of Return by investing in Physical Gold with other gold Investments. This provides a chance to investors to earn over and above what the Physical Gold has to offer. As the Gold Prices are volatile, here the managers have the option to dilute the volatility by exploring gold-related options. Also, this is equally a disadvantage as much beneficial it may seem. Sometimes the volatility earns money while some lose you money. So Fund Manager with a vision to beat volatility and returns might actually go wrong and Gold Mutual Funds may end up with lesser returns than the returns of Physical Gold. There are Fund Management Charges but no trading/brokerage charges collected separately. And also, you don’t need a Demat Account for investing in Gold Mutual Funds.

And the third alternative that I want to mention here in this article is related to Gold Mutual Funds which is Gold Mutual Funds (Fund of Funds) or also known as Gold Mutual FoFs. This Investment vehicle invests in various Gold Mutual Funds. Typically, this scheme invests in Gold Mutual Funds offering further Diversification.

Other Alternatives include Derivatives (Futures, Forwards, Call Options) and Stocks of Gold Mining Companies. But these are either not accessible to normal investors, are too much complicated and confusing, or are not near alternatives. The above-explained alternatives and the two alternatives in the previous articles are easy to understand and are less complicated if an investor decides to Invest.

In all, these alternatives eliminate the storage and holding risks of Physical Gold as these are held in paper or digitally. Over and above the risk of reselling is also decreased as these options fetch close prices of the physical gold when you sell it, while you are likely to fetch lesser than the current market price when you sell physical gold. These said, the ultimate decision lies in the hand of the customer who intends to buy gold and the purpose be it Investment or for just accumulating it. There are no judgments in terms of Gold. Because we all looooooooove GOLD.

This is Shreyans Shah signing off until the next one and till then you stay safe and keep learning and also stay hydrated, "Kyuki Azooba Kehte Hai Paani Peete Rehna Chahiye".


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