Is Gold Leasing a good option for future of gold investment in 2023?

What will be the future of gold investment? While traditionally we Indians give a lot of weight to gold in our households, gold sadly doesn’t get the respect it deserves when it comes to being treated as a financial investment.

Those who invest in gold are quite curious about gold prices and its returns. One can now invest in various options that are backed with real gold but available in non-physical mode like gold bonds, ETFs, new option of gold leasing, gold funds, etc. Unlike physical ones, these new-age digital gold investment options are far more convenient and offer higher returns in many cases like via gold leasing.

While gold ETF track gold prices and gold bonds provide additional 2.5% simple interest, gold leasing goes a step further and can offer extra returns of 3-5% in addition to returns coming from gold price appreciation.

But first let’s discuss a bit about why you should seriously consider investing in gold and then we will compare the available gold investment options in detail.

Why You should Always have Gold in Portfolio?

Indians traditionally buy a lot of physical gold. But gold should also be part of one’s long-term investment portfolio. As a financial asset and not a physical one. If you see the price history of gold in recent years, the gold investments have given stellar returns. This augers well for the future of gold investment for Indians.

Gold prices were around Rs 28,000 per 10 grams around 5 years back. These are now at Rs 54,000! That’s an average return of close to 14 percent per annum. And even if we look at the real long-term averages, then gold can deliver 9-10% returns per annum in the long term. Many experts are predicting that gold might cross Rs 60,000 in a year’s time or even earlier!

While common people generally look at gold for its ornamental and consumption value, the wealthy HNI segment understands this benefit of gold investing and hence, invests a significant portion of their portfolio in gold. And this is what even small investors need to understand. Adding gold investment in your portfolio is a must, given the stellar long-term return it offers.

How much gold should you have in your portfolio?

I think having 5-15% exposure to gold can be considered. If you don’t have any allocation to gold, then please don’t buy gold in one shot. Start now and gradually increase the allocation to gold in your portfolio.

The next question would be how to invest in gold?

I will skip discussing buying physical gold or gold coins as they have lots of issues. I am not saying don’t buy them. All I am saying is that as a pure asset and as future of gold investment, it’s better to consider gold in non-physical and digital gold investment options as discussed below.

Digital Gold Investment Options India (2023)

Sovereign Gold Bonds – These are gold bonds that come with a sovereign backing and are issued by RBI on behalf of the Indian government. These track gold prices and are issued through limited period offers a few times every year. But they have a very long tenure of 8 years. So only those who have that investment horizon should consider SGBs. More so because capital gains are tax-exempted only if held till maturity. While there is an option for an early exit after a lock-in period of initial 5 years but then your profits will be taxable as per the normal gold taxation rules in India. These bonds also offer an additional 2.5% but simple interest (on investment price and not latest gold value) which is paid out semi-annually to the bond holders.

Gold ETFs – Gold ETFs are exchange-traded funds with physical gold as the underlying. These also track gold prices and allow one to have exposure to gold in a cost-effective manner. Unlike SGBs which have a long lock-in, gold ETFs are very liquid and traded on exchanges.

Gold Leasing – This is a new digital gold investment option which now with help of fintech platforms, is open for small investors as well. Earlier it was available to only the rich HNIs. Gold leasing is a method by which you can lease your digital gold investment (for you) to jewellers who will utilize the gold (converted to physical gold) as part of their working capital. Post the utilization and for the time the lease was active, the jeweler returns gold along with rental payments that are paid out to investors as additional returns (in gold itself) which is over and above the returns coming from gold price appreciation. To give a more relatable example – it is like owning a house which is appreciating in value and giving it on rent for extra returns. The platforms that offer digital gold leasing option in India claim up to 5% extra returns from the lease. So, say if gold appreciates 10-11% then an extra 5% via lease would mean total returns of about 15-16%. The lease follows monthly interest payout with daily calculations and as per the platforms, offers 100% bank guarantee and have practically no lock-in at investor level. Some people might confuse this with GMS, but that is not the case. Leasing of gold is not part of the Indian government’s gold monetization scheme in India. Given the extra returns that the product/concept offers, it is something that those who want something extra from their digital gold investment can consider.

Gold Funds – This is another option. These are simply mutual funds that invest in gold ETFs. If you don’t have a demat account to buy gold ETF, you can use gold funds instead. These have a higher cost compared to ETF due to fund structure.

So that was about the outlook of the future of gold in 2023 and how you can invest in gold via existing options as well as new gold investment options like Gold Leasing which many are considering as the future of gold investment in India.

Leave a Reply