Buying gold this Akshaya Tritiya? Here's your guide

Akshaya Tritiya has long been associated with prosperity and new beginnings. And for many Indians, there's no better way to mark the day than by buying gold.

But while buying gold on this auspicious day is symbolic, it's important to view it differently from an investment standpoint. Gold is a reliable store of value, a shield against inflation and economic uncertainty. However, it doesn't generate income or grow significantly over time like equities can.

Ideally, gold should form only about 5-10 per cent of your overall portfolio. It's best treated as a hedging instrument, not as a primary wealth creator.

So, if you're planning to add the yellow metal to your portfolio this Akshay Tritiya, here are the best ways to do it:

1) Sovereign Gold Bonds (SGBs)

Sovereign gold bonds (SGBs) are government-backed securities that offer investors a dual benefit: exposure to gold price movements and an additional 2.5 per cent annual interest. Moreover, they come with a tax advantage if held till maturity (eight years)—capital gains are tax-free.

However, no fresh SGB issuance is currently open. Investors can still buy existing SGBs from the secondary market (stock exchanges), but prices are at a premium to the prevailing gold rate, making them slightly less attractive. Given this, you can explore other options.

Suggested read: How to buy and sell SGBs on stock exchanges

2) Gold ETFs and gold FoFs

Gold ETFs (exchange-traded funds) track gold prices and are traded on stock exchanges just like stocks. To invest in ETFs, you need a demat account and a trading account. They offer a low-cost, transparent, and liquid way to invest in gold.

Gold FoFs, on the other hand, are mutual fund schemes that invest in these Gold ETFs. They allow you to invest in gold without needing a demat account, making them accessible for those who prefer the mutual fund route. That means you can also do a SIP in gold FoFs.

In short, if you already have a demat account and are comfortable with stock market investing, a gold ETF is the more cost-efficient choice. If not, a gold FoF offers an easier entry point, though at a slightly higher cost.

What to watch out for

Whether you choose a gold ETF or a gold FoF, keep a few things in mind:

• Expense ratio: Lower is better. High fees directly eat into your returns.
  
• Tracking error: This is the difference between the fund's performance and the actual movement of gold prices. A smaller tracking error indicates better fund management.
  
• Liquidity: Particularly for ETFs, higher liquidity ensures you can easily buy and sell without large price spreads.

Suggested read: SGBs are costly now. How else can you invest in gold?

The final word

Buying gold this Akshay Tritiya can be both meaningful and smart if you choose the right option. But remember—gold should complement your portfolio, not dominate it.

If you're unsure which gold fund to pick, Value Research Fund Advisor can help.

This Akshay Tritiya, let tradition meet smart investing.

Also read: Is gold a relic or a refuge?