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A study on various forms of gold investment

Article · July 2013

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Nishad Nawaz Sudindra vr

The Kingdom University International School of Management Excellence, bangalore
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 June 2013, Volume No: 2 Issue: 4

A study on various forms of gold investment

1
Dr M Nishad Nawaz
Department of MBA & Research Centre,
East West Institute of Technology, Bangalore.
2
Mr Sudindra V R, Assistant Professor
Department of MBA, Nandi Institute of Technology and Management Sciences (Formerly
known as Auden Technology and Management Academy, Bangalore.

Abstract:
In the current market scenario of high volatile, rapidly changing market place, various
avenues for investment in gold are creating the confusion among Investors. As per various
studies 16,000 tons of gold is there in Indian households predominantly in the form of
jewellery. There are various alternatives available for investment in gold through options
like jewellery, coins, bullions, ETF, mutual funds, E-gold etc. The present study “A study on
various forms of gold investment” tries to study forms of gold investment available to
investors. The objectives of the study is to understand the various investment options for
investors, factors needs to be aware of and know-how of investing in gold , pros and cons of
various forms of investments and to assist investors in creating awareness about various gold
investment options. For the purpose of study the primary data and Secondary data has been
collected. Primary data consists of questionnaire and secondary data through website,
research papers and magazines. Based on the research it is found that many investor still
prefer jewellery, gold coins and gold bullion bars forms of investment and prefer to invest in
ETF and Futures and options which gives more profit and easy form of investment.
Key words: Tax treatment, Gold, Investment.

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 June 2013, Volume No: 2 Issue: 4

1. Introduction:
1.1 Introduction to gold:

Gold is a comparatively dense, shiny, yellow metal. As an element, gold is quite resistant to
corrosion (by oxygen, but also many other chemicals).
“Gold is a chemical element with the symbol Au and an atomic number of 79. Gold is a
dense, soft, shiny metal and the most malleable and ductile metal known.”
In ancient times the value of gold had already been discovered. People took gold to make
jewellery and currency. It is a symbol of wealth, beauty and heritage carrying memories and
cultures. However, besides these, gold also makes significant contributions to a wide range of
technologies. Due to its physical features as corrosion resistance and highly malleable and
ductile, gold is being applied in space exploration, nanoparticle technology, and medicine.
Moreover it is also used as the bonding wire at the core of an iPhone.
1.1 Introduction to gold as an investment:
Gold is considered by many, to be the best investment you can make to protect yourself
during stock market declines and inflation. In fact, history shows that the performance of gold
goes up in times of high inflation. However, the price of gold also has its highs and lows and
you could just as easily lose money investing in gold as with any other investment.
Factors need to be considering while investing in gold:
(i) Forms of buying gold: any investor has to be aware of the different forms of buying
gold. Jewellery, the most traditional and the dominant form of buying gold in India and
Bank coins, bullion bars, gold exchange trades etc are other forms of investment.
(ii) Current income: Gold in any form does not give any current income. The only exception
is the dividend option in the gold ETFs. If held in the physical form, there is only outflow of
cash for the maintenance of lockers.
(iii) Capital appreciation: gold is a very strong bet compared to shares that are highly
volatile. The idea for gold investment will be to use it at times when the markets are falling
and when the inflation is very high.
(iv) Risk: Gold does not carry much risk at least in India, as we hardly see deflation in the
real sense.

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 June 2013, Volume No: 2 Issue: 4

(v) Liquidity: Gold scores the highest in terms of liquidity, compared to all other
investments. At any time of the day and any day gold can literally be converted to cash.
Banks would give you a jewellery loan (remember though that many banks do not give loans
on coins, including their own), and so would your friendly neighborhood pawn shop
(vi) Tax treatment: Gold suffers capital gains tax as per the IT Act. So it is better to ask your
jeweler for the bill. Gold does not have any other tax benefits.
(vii) Convenience: Gold scores very high here. But with the per gram price rising, the
smallest single investment is becoming higher.
1.1 Various forms of investment in gold:
a. Jewellery
b. Gold bullion bars
c. Gold coins
d. Gold certifications or deposit scheme
e. ETF
f. Gold mutual funds
g. E-Gold.
h. Futures & options.
1. Problem statement:
In India most of the investors invest in gold in the form of jewellery which involves various
constraints; includes high making charges, loss of value, safety issue and storage/locker
charges. The present study creates awareness among investors in investing in various forms
of gold investment.
2. Objectives of the study:
 To study the various options available for investors in gold investment.
 To study the investors awareness on various forms of gold investment.
 To study the pros and cons of various forms of gold investment.
 To assist in creating awareness among investors on various gold investment.

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 June 2013, Volume No: 2 Issue: 4

3. Methodology:
The present study is descriptive study in nature. In this study my objective is to study various
options available for investors in gold investment and to create awareness on various forms
of gold investment. In order to get required information, the information was gathered from
the Primary and Secondary sources. Primary data consists of questionnaire and secondary
data consists of information sourced through various websites, research articles. For the
purpose of study data has been collected from 50 respondents in Bangalore and the
convenience sampling has been used.
Data Analysis and Interpretation
Table 1-Table showing respondent gender information
Male 27
Female 23

Graph 1-Graph showing respondents gender information.

Description: Above graph shows 54 per cent respondents are males and 46 per cent are
females.

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 June 2013, Volume No: 2 Issue: 4

Table 1.1 -Table showing most preferred investment options among 4 metals

Metal Number of respondents Percentage

Gold 21 42
Silver 16 32
Platinum 09 18
Diamond 04 8

Graph 1.1-Graph showing most preferred investment options among 4 metals

(In per centage)

Description: Based on above graph 42 per cent of investors prefer to invest in gold than
silver platinum and diamond and the second preferred investment is silver.

Table 1.2-showing willingness to invest in gold

Yes 44
No 06

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 June 2013, Volume No: 2 Issue: 4

Graph1.2-Graph showing willingness to invest in gold

Description: 44 respondents i.e. 88 per cent of investors willingness to invest in gold and
only 12 per cent respondents not willing to invest in gold.

Table 1.3-Table showing most preferred form of Investing in Gold

Jewellery 18
Gold bullion bars 08
Gold coins 10
Gold certificate/deposit 01
scheme
ETF 05
Gold mutual fund 04
E-gold 03
Futures and options 01

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 June 2013, Volume No: 2 Issue: 4

Graph 1.3-Graph showing Table showing most preferred form of Investing in gold

Description: Based on above graph 36 per cent of investors preferred option of investing in
gold is jewellery, 16 per cent and 20 per cent in gold bullions and gold coins, only 2 per cent
investors are aware of gold certificate and futures and options, gold mutual fund, e gold and
ETF are very marginally preferred form of investment.
Table 1.4-Table showing pros and cons over gold jewellery investment

Pros
Convenience 26
Fashionable 14
Usage purpose 10
Cons
Making charges 44
Loss of value 05
Safety issues 01

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 June 2013, Volume No: 2 Issue: 4

Graph 1.4-Graph showing pros and cons over gold jewellery investment

Description: Based on above graph 26 respondents invest or purchase in jewellery due to

convenience and prefer constraints in investing in gold is making charges.
Table 1.5-Table showing pros and cons over gold bullion bars
Pros

Easy form 05

Purity 40

Accessibility 05

Cons

Safety 05

Storage charges 05

Denomination 40

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 June 2013, Volume No: 2 Issue: 4

Graph 1.5-Graph showing pros and cons over gold bullion bars

Description: Based on above graph 80per cent of respondent preference to invest in gold
bullion due to purity of gold and 80per cent feels the gold bullion bars will be available with
10 gm and above which may not suitable for all types of investors.
Table 1.6-Table showing pros and cons over gold coins
Pros
Easy form 30
Moderate loss value 10
Denomination 10
Cons
Safety 22
Storage charges 14
Making charges 14

Graph 1.6 Graph showing pros and cons over gold coins

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 June 2013, Volume No: 2 Issue: 4

Description: 60 per cent of respondents prefer to invest in gold coin due to easily available
and 20 per cent feels moderate loss value and available in lesser denomination. 44 per cent
feels gold coins are not safe involves some making charges and storage charges.
Table 1.7 Showing pros and cons over certificate/deposit scheme
Pros
Safety 48
Purity 02
Cons
Less return 28
Amount of investment 22
Graph 1.7 Graph showing pros and cons over certificate/deposit scheme

Description: From the above graph it is observed that 96per cent of investors prefer to
invest in gold certificates due to safety and feels that it gives less return and the amount of
investment required is not affordable.
Table 1.8 Showing pros and cons over ETF
Pros
Easy 48
Purity 02
Less transaction cost 00
Safety 00
Cons
Knowledge 42
Delivery 08

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 June 2013, Volume No: 2 Issue: 4

Graph 1.8 Graph showing pros and cons over ETF

Description: Based on above graph 94 per cent of investors feels that investment in ETF is
very easy form of investment as it does not require physical form and require proper
knowledge to gain access to the market.

Table 1.9 Showing pros and cons over gold mutual funds
Pros
Easy 10
Professional management 30
Less transaction cost 10
Cons
Risk 45
No control 05

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 June 2013, Volume No: 2 Issue: 4

Graph 1.9 Graph showing pros and cons over gold mutual funds

Description: 60 per cent of respondents feel that mutual funds are professionally managed
and give more advantage and profit and also feel it is very risky due to market uncertainty.

Table 1.10 Showing pros and cons over E gold

Pros
Easy 25
Purity 10
Less transaction cost 05
Safety 10
Cons
Knowledge 10
Delivery 40

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 June 2013, Volume No: 2 Issue: 4

Graph 1.10 Graph showing pros and cons over E gold

Description: Based on above graph 50per cent of respondents feels that it is very easy form
of investment and constraints is there is no physical delivery and the delivery charges are
high.

Table 1.11 Showing pros and cons over futures and options

Pros
Easy 10
High exposure 31
Less transaction cost 09
Cons
High risk 45
Over trading 3
Wrong calls 2

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 June 2013, Volume No: 2 Issue: 4

Graph 1.11 Graph showing pros and cons over futures and options

Description: Based on above graph respondents prefer to invest in futures and options due to
high exposure and less margin and feels that future and options are high risky form of gold
investment it may erode your capital in few seconds.
Finding of the study

The data were analyzed using statistical tests that have been described earlier and the results
drawn based on these tests are given below:
 36 per cent of investors preferred option of investing in gold is jewellery, 16 per cent
and 20 per cent in gold bullions and gold coins, only 2 per cent investors are aware of
gold certificate and futures and options, gold mutual fund, e gold and ETF are very
marginally preferred form of investment.
 26 respondents invest or purchase in jewellery due to convenience and prefer a
constraint in investing in gold is making charges.
 80per cent of respondent preference to invest in gold bullion due to purity of gold and
80per cent feels the gold bullion bars will be available with 10 gm and above which
may not suitable for all types of investors.
 60 per cent of respondents prefer to invest in gold coin due to easily available and 20
per cent feels moderate loss value and available in lesser denomination. 44 per cent
feels gold coins are not safe involves some making charges and storage charges.

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 June 2013, Volume No: 2 Issue: 4

 94 per cent of investors feel that investment in ETF is very easy form of investment as
it does not require physical form and require proper knowledge to gain access to the
market.
 60 per cent of respondents feel that mutual funds are professionally managed and give
more advantage and profit and also feel it is very risky due to market uncertainty.
 futures and options due to high exposure and less margin and feels that future and
options are high risky form of gold investment it may erode your capital in few
seconds.
Suggestions:
 It is suggested for investors to purchase gold jewellery with the known jewellery
makers or the standard retail outlets where making charges are comparatively lower.
 Purchasing gold bullion or gold coins attracts service tax and at the time of selling
will not get good returns. It is suggested for investors not to purchase gold coins or
gold bullions for shorter period. Holding gold coins or gold bullions for longer period
is suggestible.
 It is suggestible for investors to invest in gold ETF where possibilities of losses or
limited. ETF’s are available at easy and it does not need high knowledge, as it is very
easy trading mechanism.
 It is suggestible for investors to go through offer documents, scheme objectives,
performance analysis through experts before investing in mutual funds.
 It is suggestible for small investors should not enter into Futures and Options without
proper knowledge on trading and risk management strategies. Although Futures and
Options provide high exposure for traders it involves high degree of risk.
Conclusion:
In the current market scenario of high volatile, rapidly changing market place, various
avenues for investment in gold are creating the confusion among Investors. As per various
studies 16,000 tons of gold is there in Indian households predominantly in the form of
jewellery. There are various alternatives available for investment in gold through options like
jewellery, coins, bullions, ETF, mutual funds, E-gold etc. The present study “A study on
various forms of gold investment” tries to study forms of gold investment available to

15
 June 2013, Volume No: 2 Issue: 4

investors. The objectives of the study is to understand the various investment options for
investors, factors needs to be aware of and know-how of investing in gold , pros and cons of
various forms of investments and to assist investors in creating awareness about various gold
investment options. For the purpose of study the primary data and Secondary data has been
collected. Primary data consists of questionnaire and secondary data through website,
research papers and magazines. Based on the research it is found that many investor still
prefer jewellery, gold coins and gold bullion bars forms of investment and prefer to invest in
ETF and Futures and options which gives more profit and easy form of investment.

References

1. Maloney, Michael (2008). Guide to Investing in Gold and Silver – Protect Your
Financial Future. Business Plus 2008.
2. Jalpa Thakkar,“An empirical study on gold investment rage among the
professionals”- a comparative analysis of gold, etf, egold and gold fund, ASM’s
international e journal, 2013.
3. Mr. P. Arulmurugan, Dr. K.Balanagaguruthan, “A Study on Investment Behavior of
Professors Towards Gold with Special Reference to Tamilnadu State”,Vol 2, Issue 2,
Feb 2013.
4. “About Gold-ETF”. nsegold.com.
5. “Gold: A commodity like no other”,World Gold Council. Gold.org
6. Tiddie.com, An Introduction To Gold As An Investment, 26th May 2013
7. http://gold.approximity.com/gold_FAQ.html.
8. http://profit.ndtv.com/news/your-money/article-investing-in-gold-7-facts-you-should-
know-317318.per cent.

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