India has seen a massive surge in the number of upcoming investors post covid 19 pandemic. The lucrative returns from the share markets during this period was one of the major reasons for this. While the majority of the retail investors have their portfolio distributed between stocks and mutual funds, experienced investors look for stability and hence allocate a significant portion of their portfolio into gold. Some of the popular gold investment assets used by investors are Gold ETFs & Sovereign Gold Bonds. However, with the rise of new-age investment options like gold leasing that give extra returns on gold investments, investors can reconsider their gold investment strategy. In this blog, we will compare the popular gold investment option of Gold ETF with Gold leasing.
It’s not a good idea to keep gold in your house because of the dangers associated with doing so. Gold ETFs (exchange-traded funds) offer a great convenience over holding real gold. ETFs of Gold are managed in a passive manner and properly reflect the current price of gold, in contrast to the actual gold prices in India, which vary based on location and the demand-supply dynamics in the market. Gold ETFs also have lower transaction costs than physical gold.
Gold ETFs
Exchange Traded Funds of Gold, are a way to invest in gold without physically owning gold. They are financial instruments that track the price of gold and allow investors to buy and sell shares in a fund that holds gold as its underlying asset. The gold ETF prices are directly linked to actual gold prices in the market and require a demat account for investments.
When you are investing in a gold ETF, you are buying a small piece of a larger pool of assets held by the fund rather than physical gold managed by companies. Gold ETFs offer a convenient and cost-effective way to invest in gold. One ETF is equal to 1 gm of Gold
Overall, gold ETFs can be a convenient and low-cost way for investors to gain exposure to the gold market, a general long-term return on gold ETFs being around 10% per annum. Gold ETFs generally come with no lock-in period.
There are newer and easier ways to invest in and lease gold that have entered the market, so it is always a good idea to do some market research to find the most convenient and advantageous options.
Gold Leasing
Jewelers just like any other business require raw material or working capital for their business needs. Gold leasing is a method by which you can lease your gold metal (Digital Gold) to these Jewelers (Lessee), and they in turn provide you with a rental payment on top of your leased gold.
Gold leasing is a practice that has existed in the offline markets for a long time. However, this was accessible to only the closed group ultra rich community and even they required kilos of gold to take advantage of this practice.
Fintech apps like Gullak app, have made this practice accessible to all & have turned it into an investment asset.Their Gold+ leasing feature allows users to earn an additional 5% in gold per year on their regular gold investments, bringing the potential return on gold to a very attractive 16% per year (11*% average appreciation plus the assured extra 5%). This makes it a high-return investment product.
Gold bought on the platform is leased out to large jewelers that provide extra gold interest on top of the historical Gold returns on the leased gold. These jewelers are verified by Augmont, one of the biggest gold refineries in India. The investors are also provided with a 100% bank guarantee against the gold leased.
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How is Gold Leasing better than gold ETFs?
| Category | Gold + (Gold Leasing) | Gold ETFs |
| Returns | Gold+ allows users to get up to 16% returns (11% + an additional 5% gold ) | Gold ETFs have gold as the underlying asset & hence returns range between 10-11% |
| Extra benefits | Additional 5% returns on top of gold price appreciation | No additional return |
| Returns in the form of | The extra returns are also in form of Gold and it also appreciates at the market rate |
Overall returns are in the form of cash. However, this provides no additional returns. |
| Charges | Comes with a one time 3% GST | They include 2 types of charges:A. 0.4% commission feeB. Storage or brokerage fee is also charged |
Conclusion
Overall, while both gold ETFs and Gold leasing offer the opportunity to invest in gold, Gold leasing may be a smarter choice as it gives an opportunity to earn an extra 5% on top of Gold & gives up to 16% returns. For investors who are looking to gain higher returns on their gold investments at par with investments such as Mutual funds, it becomes a clear winner. Investors can even choose gold leasing as their primary instrument method if they are looking for high and stable returns at low risk.
