Globally, gold has been considered a must-have in your investment portfolio. Gold mitigates risk, diversifies your portfolio and offers you great liquidity.

It is for these reasons that gold as an investment is gaining popularity worldwide. Globally, investments in gold increased from USD 3,410 million in 2002 to USD 6,250 million in 2004 – some of them in physical form and some in paper. In India itself, investment in gold in the form of bars and coins almost doubled in the first quarter of 2005 to 189 tonnes as compared with the same period last year.

Consumption and Investment in India (in tonnes)

	Q12004	Q1 2005
Jewellery	576	688
Investment	100	189
Total Gold Consumed	776	977

Today, gold forms 10% of average Indian asset allocation.

Asset Class	Allocation
Bank Deposits	20%
Insurance and Small Savings	27%
Gold	10%
Shares	2%
Mutual Funds	2%
Others	39%

But, most of this gold is in the form of jewellery – something that is looked upon as a status symbol to be sold only in distress. Gold is not yet considered as a serious part of an investment portfolio. Jewellery by itself has a major drawback – there is a loss of around 30% due to making charges.

Then what would be the ideal way to invest in gold? Sanjeev Agarwal, Managing Director-Indian Sub Continent, World Gold Council (WGC)  suggests that physical gold can be bought from banks like ICICI Bank and HDFC Bank. The banks have started to sell 10 gm denominated gold coins. These coins are of 99.99% purity. If you sell these coins or bars in the market, you will get the full value of gold without any loss due to making or melting. Financial planners recommend a systematic investment in gold.

Certified Financial Planner Gaurav Mashruwala and his wife Pranati did exactly that. They have been buying 100 grams of physical gold every year for the last 10 years. They make their purchase every Diwali. Over the last 10 years, they have managed a return of 8.5% per annum.

The last few months have also thrown open another opportunity. If you are looking at investing reasonably large amounts in gold, Agarwal recommends investing in a new product called i-gold. The WGC along with MCX launched i-gold a few months back. With this product, a retail investor can purchase gold through his stockbroker just like he is used to buying equity share on the Indian Stock Exchange.

Says Agarwal, “Given that every Indian household buys gold for bigger social events like marriage, this is an ideal product to invest in as part of systematic investment plan. The SIP will not just hedge the price risk, but will also facilitate a structured investment in smaller denominations of imported gold bars which can be used for making jewellery etc. on a later date.”

Salient Features of i-gold
Low Purchasing Cost
If an investor buys gold today from a jeweler, in addition to the gold price, he will end up paying for making charges + custody + insurance charges, which take his overall cost of transaction to at least 2-5% over the gold price. This product reduces the cost drastically to just 1%.
Demat Option
An investor has an option of holding it in his existing demat along with other assets. The process of getting the gold demated is similar to that of equity shares.

Limitations of i-gold
High Investment
Minimum investment is 100 grams, which is equivalent to around Rs 75,000.
Liquidity Problem
Liquidity can be a problem since you can sell only at the end of the contract period of one week in the exchange. It is not as liquid as physical gold.

Author: Deepa Venkatraghvan