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Gold ETF vs Gold Mutual Funds vs Sovereign Gold Bond vs Physical & Digital Gold - YouTube
Channel: Asset Yogi
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Namaskar, my name is Mukul and welcome to AssetYogi.
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Friends, recently we did two videos on gold
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if you haven't watched it do watch it after this video.
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You might remember we discussed if we buy physical gold in form of jewelry
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there are some drawbacks to that.
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And for that reason, we should not count it as an investment
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as we are buying it for consumption.
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And what are these reasons?
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First, there are design and making charges so we lost 15-20% there already.
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Second, there is a problem with storage,
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there is a risk if you put it at home or otherwise need to take the cost for it.
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The third problem is impurities if you are buying it for a jeweler or a
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dealer, so you don't have an idea, that how much impurity is there.
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And fourth is the income problem, there is neither interest nor rental income.
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So in that case what could be the alternatives to gold jewelry?
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So just like this, we are going to discuss 5 alternatives in this video.
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First- Physical gold as an investment.
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Second- Digital gold.
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Third- We will talk about the exchange-traded fund for gold.
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Fourth- We will talk about mutual funds for gold.
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Fifth- Sovereign gold bond that is issued by RBI.
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Now in this, there are many pros and cons for every investment options
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and there is some other use case for that.
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So we will see which investment will be better for which event.
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Along with that, we will try to identify with the risk-reward point of view
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which is the clear winner. So do watch this video till last.
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Do press the bell icon while subscribing
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so that you get the notification of the latest finance video.
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So first investment option we have is for physical gold.
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Now, we are not talking about jewelry here,
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we are talking about bullion and coins.
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If you invest in bullions mean biscuits or bricks
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so there is no problem of impurities because there you are
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investing in 24 karat gold.
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Second, there is also no problem for design and making charges,
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but definitely, there is a problem with storage
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if you store it at home there is risk involved
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otherwise, there is come cost to store it in a locker.
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To solve this there is nowadays an option for digital gold.
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You must have seen an option in many different apps like
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Paytm, Phonepay, Gpay, Freecharge, Kuvera, StockHolding Corporation
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even you can buy e-gold from National Gold Exchange.
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So how does this digital gold works? You can even start investing from a Rupee.
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So, however you invested means whatever they collected,
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let say they want to buy 50 Kg gold.
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So they go and buy from 3 companies, what are the 3 companies in India?
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First is MMTC-PAMP, MMTC is a government organization
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and PAMP is a Swiss Company
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so it is a joint venture of that.
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The second company is Safegold and the third company is Augmont.
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And these companies are refining and minting companies.
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So these store gold in their secure vaults.
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So here you can buy digital gold as much and anytime you want
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and sell, hence the liquidity is very high.
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And if you want to take delivery of it you can take that too as well.
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But for that delivery to need to invest a minimum of up to 0.5 gram to 1 gram.
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And for maximum how much time can you invest? You can do it for 5-7 years,
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for example, MMTC gives you the option
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for 5 years after that, you need to either take delivery of the gold
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or sell it at the current price of that time.
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And here either there are no storage charges
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for example MMTC do not have any storage charges
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or very minimum charges like in the case of Safegold if your investment is
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less than 2 grams, so after 2 years you are charged with 0.05 %.
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And how maximum how can you invest,
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you should check it in-app what options you have.
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For example, in Paytm and Gpay you can easily invest up to Rs 50,000
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after that, there is a need for KYC.
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And if you invest through StockHolding Corporation of India,
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then your minimum investment is Rs 100
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and KYC is required from the start there.
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So let's first talk about gold ETF.
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First, let's understand what is ETF?
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ETF stands for Exchange Traded Funds,
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it operates just like mutual funds.
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It collects money from the public, institutions, and companies
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and puts that money into securities.
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For example, if there is an ETF for Nifty then it will distribute
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money according to that weightage to companies under Nifty.
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Similarly, if there is a Debt ETF, then it will put money under government securities.
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Similarly, there are gold ETFs that follow the Gold index and invest in gold.
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Here either gold ETF can directly invest in gold or some portion
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can invest in gold mining and refining companies too.
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And along with that gold ETF also generally keep 0-10% money in
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debt security to maintain liquidity.
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Now, the fourth option we have is Gold mutual funds
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Now as to invest in ETF you require a Demat account.
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If you don't have a Demat account you can take the option for gold mutual funds.
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So what does a gold mutual fund do?
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It invests in different ETFs so you can say it's a fund of funds.
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But if you invest in gold ETF you save on cost we will see that soon, how.
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Now the fifth option we have is Sovereign gold bonds.
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These bonds are issued by RBI, and these are very secured too
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and along with that, it can also be traded in an exchange.
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So we have understood these 5 investment alternatives broadly
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now as we said earlier
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everything has its pros and cons so let's see their detailed comparison.
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So here if we want to compare overall return so
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a very important component is how much is the cost.
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In some cases, cost increases so our return decreases.
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So see here our return depends on cost only
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because otherwise, all are gold products.
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So let's quickly see the cost.
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So if we talk about physical gold we need to pay 3% GST
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as well as in the case of digital gold we need to pay 3% GST.
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In the case of ETF, mutual funds, and gold bonds no GST is applicable.
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Storage transactions and delivery costs are nil in the case of physical gold
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when you sell it in digital form, first if you convert it into coins
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so there will be some making charges.
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Other than that there could be storage and transaction charge
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along with that if they deliver it could also be charged for.
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So we can estimate it to 2-3%.
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In the case of gold ETF, mutual funds, and gold bonds there is no charge.
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If we talk about expense ratio then in the case of physical and digital gold
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there is no expense ratio.
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But in the case of ETF because someone would manage those funds
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so there is a managemnt fee,
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it is about 0.5 to 1% in ETF, generally can't charge more than 1%.
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In the case of gold mutual funds, the management fee could be 0.5% to 1.5%
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but be a little bit careful.
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So because it is investing in ETF you are being charged 2 times.
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Mutual funds are taking it's a fee of 1-1.5% and
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along with that, there is also an additional fee of 0.5-1% towards ETF.
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So an average fee of 2% is being charged.
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There is no management fee in the case of gold bonds.
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The case of Exit load only comes under mutual funds here
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if you withdraw money before a year from mutual funds
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so there could be charged an extra 1-2% extra load.
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It is also nil in the case of gold bonds.
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Now let's talk about brokerage or any type of commission charges,
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DP charges, STT, etc.
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If we want to buy anything in Demat form
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so small fee could also be charged in that case.
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So these are not applicable in physical gold or digital gold but when you buy ETF
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from Zerodha, Upstocks like a discount broker, so there are no brokerage charges
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but yes these small government charges are applicable
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like securities transaction tax or DP, charges could be applicable.
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But these are very negligible.
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Now gold in mutual funds, if you buy mutual funds directly
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so there are no charges, nowadays there are a lot of apps we will talk about soon.
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There are no charges there nor do you need to pay any commission.
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And if you buy gold bonds then also there is no charge to that if you
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buy if through discount brokers like Zerodha, Upstocks, etc.
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So if we want to compare returns, how to do that?
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So see, I have first assumed that we get 8% annual returns
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overall calculated simple returns like this, let say
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In 5 years overall gold price increase by 40%
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so I roughly assumed that we are getting 40% returns in every case
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at gold return.
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No, we need to subtract the cost from this but before that, we need to add one thing
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that makes this product very unique.
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We get 2.5-3% interest per annum in sovereign gold bonds, which RBI gives.
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So we need to add this too in our returns.
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And this would not be 2.5% but 2.5% multiplied by 5.
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So what are our effective returns here?
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In the case of physical gold, we need to subtract GST of 3% so 37%.
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In the case of digital gold
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let say 3% is GST and subtracted
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2% for storage transactions and delivery charges.
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So returns are 35%.
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In ETF if we consider 1% is the charge annually
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so we subtracted 5% for 5 years so our effective return is 35%.
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And in the case of gold mutual funds, the returns are very less
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Why? Because here,
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1% is charged for mutual fund 1% for ETF, so 2% anually
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so 10% for 5 years so, 40-10% so your efective return is just 30% left.
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Now let's see the case of gold bonds, there is no cost of any kind
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plus you are getting an intrest of 12.5%, so 40+12.5%
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it would not be 42.5% but actually, it would be 52.5% returns.
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So you can see there is a clear winner here if we just talk about returns.
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And that is of the sovereign gold bond.
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But every investment option as we talked about earlier has its pros and cons.
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Let's also see the other factors how these compare to it.
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So in this first, we will talk about SIP, that is Systematic Investment Plan
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In physical gold, you can buy whenever you want to,
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so there is no option like that.
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In the case of digital gold, you can find an option of SIP in all the apps to
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automatically investing some amount of money every month.
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You don't get this option in the case of gold ETF also
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whenever you want to buy, invest in ETF or sell,
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so you need to go to your Demat account and like as we buy and sell stocks
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you need to buy/sell ETF the same way.
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And I will also demonstrate how to do this.
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If you buy gold mutual funds there is an option for SIP.
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You also don't get an option for SIP in sovereign gold bonds,
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so whenever you need to buy, it needs to be bought in a stock exchange or
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whenever there is a new issue of RBI then you need to buy.
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But if we talk about liquidity, in physical gold you can sell it easily
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I think you can easily sell it to a jeweler or a dealer.
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Liquidity is also high for digital gold because you can easily see it via an app.
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I have written moderate for gold ETF because a lot of times
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liquidity could be less because ETFs are not that popular in India
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but are very popular in western countries.
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Although ETF as a product is a very good product it is not marketed well yet.
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In ETF gold is the most popular product you will see that
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gold has the most ETF available. And we will also see what are these ETFs.
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If we talk about gold mutual funds you can also see that very easily sell it
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because it is an intermediary and it also maintains some liquidity
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by itself, so you can get cash any time.
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If we talk about the sovereign gold bonds we will say moderate liquidity because
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here also, transaction volume is not that high in gold bonds
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But whenever I have made a transaction I could buy and sell very easily
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even in secondary market.
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So it's not like liquidity is very low in the case of gold bonds and ETF
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but I will also not say it high like in other options.
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We also have another factor of minimum investment, so whenever you
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go to buy physical gold you at least buy half a gram or 1 gram
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below that, you can't even make a coin easily.
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So if we are talking about investment and not jewelry
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so let's take a minimum investment of 0.5-1 gram.
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You can even start from 1 Rupee in digital gold
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so there is no entry barrier here.
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If we talk about ETF the minimum unit is 1 gram
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so in today days if the gold is at Rs 48,000 or Rs 49,000
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so approximately let assume Rs 5,000.
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You need to invest a minimum of Rs 5,000.
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In gold mutual fund you can start from Rs 500.
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And in a gold bond also you need to do a minimum investment of 1 gram.
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Now if we talk about delivery,
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you need to take delivery of physical gold.
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If you want to take delivery of digital gold so minimum
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you can get a delivery of 0.5 to 1 gram.
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If you want delivery in the case of gold ETF it would be a minimum of 1 kg
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and 1 kg is a very big amount.
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If we talk about gold mutual funds, so delivery is not possible here
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and also in the case of gold bond delivery is not possible.
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Here, one important factor is loan also for a lot of people
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in physical gold, so carefully understand,
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if you have physical gold in form of coins whose
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If the gram is less than 50 grams then you can take a loan against that.
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This is stated by an RBI regulation that gold coin value
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should be less than 50 grams and gold bullion that comes in the form of brick
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or gold biscuit, you can not loan against that as collateral.
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So similar problem arises in the case of digital gold because all the gold
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there, is also stored in form of bullion.
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Therefore you cannot take a loan against digital gold.
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In the case of ETF also you cannot take a gold loan because that is also stored
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in form of bullion.
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You can also not put mutual gold as collateral as it gold
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is investing in ETF.
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Sovereign gold bond again has an advantage, RBI started clearly
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you can take a loan by putting a sovereign gold bond as collateral.
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Now how to buy these, let's quickly see that as well.
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Physical gold you buy from dealers or through banks,
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we have already seen all these options for digital gold
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and these three companies that we talked about MMTC, Safegold, and Augmont
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gold is stored near them.
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Gold ETF you need to buy through Demat account if you buy it through
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Zerodha, Upstocks discount brokers like these then your charges are negligible.
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And if you want to open an account in Zerodha or Upstocks
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then I will provide links below.
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Now if we talk about gold mutual funds then nowadays there are many apps
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for mutual funds where there are no charges,
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like you can use Zerodha Coin, Groww, Paytm money, Kuvera, etc.
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So here you can buy mutual funds, and we will also see how to do that.
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If you want to buy gold bonds, when RBI issues new gold bonds
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then you can buy it through banks, post office and through
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stock holding corporations.
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Otherwise, if you want to buy in the secondary market cause
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RBI only issues only 3-4 times a year.
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But in between that, whenever you need to buy or sell it
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so for that, you can use your Demat account
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but let me surely demonstrate to you how to invest in mutual funds and ETFs.
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And gold bond as I told you, we have done a detailed video, so do watch that.
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So let's quickly see how to buy ETF and mutual funds.
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So as I told you, to buy ETF we need a Demat account
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so I am demonstrating under Zerodha kite, if you already have an account
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so login to kite,
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after that under watchlist type ETF.
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It will show all the ETFs, you can see all types of ETFs.
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So see like Axis gold, so you can consider all the gold ETF.
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There is a gold ETF of Aditya Birla, Let go down more,
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gold ETF, Goldbees of Nippon India, the gold share of UTI Gold.
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Let's scroll down more, we can find ICICI gold.
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So if you want to invest under any gold ETF, you can
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see their asset under management, you can check their rating.
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And if asset under management is high of any ETF
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so you can also see maybe liquidity is a bit high,
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you can easily buy/sell it.
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You also check its past returns.
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Similarly, if you have an account with any other stockbroker then the
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the process is almost the same
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and I have already given links for Zerodha and Upstocks
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so if you don't have a Demat account you can easily open it.
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Now let's see how to invest in mutual funds,
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for that, you need some kind of app of mutual funds,
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as I told you about all that apps,
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if you have an account under Groww, Zerodha coin, Kuvera,
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in whatever app it is, under Paytm money so you can do it.
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Let's once quickly see under Zerodha coin,
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you get a search option in every app so under search
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for gold mutual funds, so let say we just type gold.
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So see we can see all gold mutual funds,
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Nippon India Gold Savings Fund, HDFC gold fund,
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SBi gold fund, DSP gold fund, so you have all the gold funds of the world
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you can consider them.
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So I hope you liked this detailed comparison of gold investment.
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So do like and share this video, and tell your friends and family members
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maybe they might also have some confusion about where to invest
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and what are the pros and cons?
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If you have some suggestions related to this video or channel
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you can comment down below.
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And if you haven't subscribed to this channel yet,
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then subscribe to it and press the bell icon.
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So that you can get the notification of the latest video.
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So, we'll meet in another informative video,
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Till then keep learning, keep earning, and stay happy as always.
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