- May 2014
- December 2013
, 21 Oct 2010
Its Diwali / Dhanteras time and banks (besides jewelers of course!) are busy peddling gold coins and biscuits. It's supposed to be a bit of everything - the cultural and traditional value of buying gold, a bit of an investment and a feeling of being 'rich'.
In your visit to the Bank, don't be surprised at how strongly you may be persuaded to buy these coins. Arguments ranging from sentiment to financial jargon may be thrown at you. We've even seen some downright fraudulent claims being made about the price of the coins vis-a -vis the day's gold rate.
What does it mean for me?
The cultural value of gold is impeccable, as is its value as an investment. However, buying it in coin or biscuit form, from banks, is a poor idea - it's neither here nor there.
A gold ring or chain has value as an ornament. Different people attribute different value to this, and we are not going to approach it as a financial investment. You will of course be paying making charges to the jeweler, but that's for a well defined objective. In coins or biscuits however, you end up paying much higher charges, for no benefit at all.
If you are not keen on jewelry, a much better option to coins is to buy gold as funds. There are mutual funds as well as exchange traded funds that invest in gold. These may not give you the 'feel' of holding the yellow metal, but give you much better safety and value for your buck. Just as you buy these coins and keep them in a locker, a fund buys gold on your behalf and keeps it safe. The NAV/price of the fund exactly mirror the price of gold in the market.
There are three big advantages of going with funds:
1. You can sell them whenever you want, and their price exactly reflects that of gold. But you cannot sell a coin back to the bank
2. Both buy gold, but funds do it at much lower cost. In bank coins, you lose easily over 7% on the prevailing price of gold - not so in case of funds
3. It is safer to store the fund certificate than coins and biscuits at home! If you go for a locker for the biscuits, it is only further increasing your cost and effort