6 Best Ways Of Gold Investment In 2021

 In India, which is the world’s second largest consumer of gold items, MCX Gold Futures Index has reached an all-time high mark . This in turn spurred demand amongst those who feared they’d miss out on this opportunity. THe value for Gold Loans has also gone up accordingly.

The pandemic has noticeably bought down prices of many commodities, which is what is making gold metal such a safe haven. Here’s what is driving the interest in Gold in our country right now.

Watch Forex to understand Indian Gold Market

Here’s why India is witnessing a phenomenal rise in investments in gold.

As the rupee value has depreciated, investors have made big returns. However, it should be noted that currently the gold market cannot be understood without taking into account currency fluctuations. The pandemic situation shall keep risk premiums quite high, which means that one may not get regular returns. However, one can expect lumped up returns after every 3 to 5 years.

Market experts advise that one should hold at least 10% of their gold assets at any point of time. It is a part of a balanced portfolio asset class which includes real estate, bonds and equities.

How to Sell Gold In India - Documents needed to Sell Gold

Unless you have been living under a rock, you may have seen the quick rise of gold rate price globally and in India. Sure, even in between it had its ups and downs, but right now it is rallying hard. For the 9th straight day, MCX futures market is seeing a record high. The demand for gold is at an all-time historic high.

This is something seldom seen before. If you want to get some immediate cash, why not sell off the gold which is lying fallow at home anyways? Why not use something which you have not used nor have any plans of using? Right now the money you can get in return for the gold you sell can be considerable. You can get Rs. 52,846 per 10 grams, and that price is steadily rising.

However, just wanting to sell gold is the easy thing. Actually selling it is tough. But here is our advice on how you should go on to sell your gold.

Documents you need for selling gold

Perhaps you thought that you won’t need any documents while selling. That is not the case, although you won’t need to show a bunch of documents either. All you need to show are your PAN card, your Aadhar card, and your purchase bill of your gold if you have it.

 When you undertake to show that the gold actually belongs to you, there is a decrease in chance to sell stolen gold.

In an ideal scenario, if you are selling gold, you should go to the same jeweler from whom who bought the gold originally. In case you do not have that option anymore, go for a reputed jeweler instead. In both cases, you’ll get a fair deal.

Items you can sell are gold coins, gold ornaments, and gold bars that you have purchased from other jewelers. It is even better to get a hallmark certificate, but in case you do not have it, have your gold machine-tested for purity.

Gold purity

If you fear about the purity of your gold, just get it tested at the designated centers in cities. This will give you a bigger chance of getting the best price for your items. Besides, you can also approach NBFCs and gold loan companies. These offer doorstep service which is so useful during the current lockdown situation.

Taxation of non-physical and physical gold if you sell

 If you sell physical gold, there is a short-term capital gains tax if you have held the said gold for one year. In this case, the gain is added to your income tax and you are taxed according to your slab. If you have held the gold for three years, there is 20% tax for LTCG after indexing. For non-physical gold like ETFs and digital gold, the tax treatment is similar, except for SGBs.

For SGBs, the interest income is charged under your Income Tax head income from other sources. There is no TDS or TCS implication. However, no capital gains tax is levied for redemption of SGBs after maturity.

Gold loan Market in India 2021 - Demand for gold in India

Gold enjoys a prestigious place in the hearts and minds of Indians all around the country, and even abroad where they live. Gold items are seen as the representation of social status, financial security, and cultural legacy. It is also traditionally seen as a liquid asset and is widely accepted as a security in lieu of money due to its value and purity. It is therefore no surprise that India is one of the largest consumers of gold in the whole world.

Between 2018 and 2019, India alone accounted for 23% of the global gold demand. In India, gold holdings are concentrated in rural areas, which accounts for two-thirds of the demand for this commodity.

Price movements of gold

Since the last 5 decades, gold prices in the country have been showing healthy growth. Around 2003, gold prices saw what is known as an inflection point, and prices rose to levels never seen before. After 2013en years later, gold prices saw a rapid rise once more, after which the price fell due to global price fall after 2015. After this point however, there was a price surge once more. The last three years are showing healthy growth once more.
The gold loan market

In India, people have an emotional bond with their gold items such as gold jewelry. Thus, these are rarely sold off, except to meet emergency and immediate financial needs. Instead, they give their gold items as collateral in return for short-term loans. This happens a lot in rural areas where farmers take short term loans by keeping their gold items as collateral. Broadly, gold loan lenders are classified into:

• Formal or organized sector
• Informal or unorganized sector
  

Industry Overview   

Borrowers get gold loans against their pledged gold items such as gold jewelry. Therefore, the quality and quantity of gold that is available to a customer is quite an important parameter in the determination of this market’s size. In 2019, the total gold loan outstanding in the organized sector alone was 5.5% of the total household gold holding in the country. This showed a very low market penetration. However, the same is expected to rise due to increased economic activity and gold monetization.

Let’s talk about the organized gold market now.

Organized gold loan market

This market is made out of public, private, co-operative and small finance banks. NBFCs or Non-Banking Financial Companies as well as Nidhi companies contribute to around 35% of the market. NBFCs giving specialized gold loans have consistently raised their market share after aggressive investment in promotions, branding and in geographic expansions. Geographic reach, presence and enhanced brand value continues to help NBFCs consolidate new markets by taking over a large part of their new customers.

Banks consider gold loans primarily as a means of meeting PSL or Priority Sector Lending, by offering such loans for other PSL purposes or for agriculture. Banks do not have flexibility and fast turnaround time, both of which are central for the gold loan customer segment.

Because of this problem with banks, NBFCs are in the perfect place and time to increase their gold loan customers and market share. An analysis of NBFC gold loan books show that their credit outstanding has grown at a rate faster than that of banks.

The arrival of Small Finance banks in the gold loan market segment as well as the arrival of Nidhi companies is further expected to increase the total customer base in the organized gold loan market. Such companies, who have more rural presence, and in the perfect place to serve customers with more financial inclusion. They are able to get funds at cheaper rates from deposits, and thus are a good competitor to NBFCs.

The Unorganized Gold Loan Market

Traditionally, gold loans have been provided to people by pawn brokers and money lenders, especially in rural areas. Currently, the unorganized gold loan market accounts for almost 65% of the total market share.

Unorganized market players have an advantage the others don’t have: local market knowledge. They also give gold loans faster and need less documentation. The downside is that they charge very high interest rates, and thus customers are always at a risk of getting exploited by loan sharks in the unorganized market.

With financial service companies trying to come into the unorganized market, a large part of the segment customers are shifting to such new entrants. Such a shift has aided many customers in getting loans from a formal credit system. It has helped new customers in getting credit records, which helps them to get more loans from the organized gold loan market.

With faster loan-processing capabilities and faster accessibility due to more branches, specialized gold loans from NBFCs are here to take over a large part of the unorganized gold loan market customers.

Development of online gold loan schemes

Today, there are many Fintech companies who are strong players in the gold loan market. These entities are now offering innovative products like online gold loans to the urban and young customers. The primary beneficiaries of such developments are urban, literate and digitally savvy customers between the ages 25 and 40.

Gold loan companies are now coming up with multiple operating models to strengthen online gold loan processing. The success of online gold loan schemes by different entities depends on operational efficiency from valuation, gold storage, loan disbursement, loan collection and closure.
Key challenges facing the gold loan industry

Gold price volatility

Gold price volatility has a strong impact on the general performance of all gold loan products. The Loan to Value Ratio, which is responsible for determining the liquid potential of gold items, is correlated negatively to gold price fluctuations. Therefore, an increase in gold prices will only result in companies giving loans with low LTV if they want to minimize risks. A decrease in gold prices will, on the other hand, increase a probability on loan delinquency since the pledged gold value goes below loan outstanding value.

Companies try to get over this problem of price volatility in gold prices by offering customers a shorter loan tenure, which helps to avoid negative impacts on NIMs or Net Interest Margins.

NBFC Liquidity stress

Do you know why there has been a series of AAA downgrades in NBFCs? Things which have seriously hurt the market confidence in the NBFC ability to boost credit ratings? This is because of the liquidity crunch. Till now, NBFCs were known to be able to deliver returns faster, and at the same time serving as entities offering credit to those who otherwise find it hard to get any kind of credit.

Now, NBFCs are finding it hard to get new funds or raise funds themselves to grow their business. Thus, they seek government aid. It should be known that NBFCs play an essential role in the Indian economy’s credit infrastructure, and have accounted for almost 1/4th of credit given to customers. NBFCs mainly deal in getting short-term funds, and then using long-term ones. This however leads to asset mismatches. It demands from NBFCs to raise capital continuously.

When there is economic growth, there is enough market confidence to support this rapid capital accumulation and disbursal, while not when there economy is in dire straits like it is now. NBFCs who give gold loans have complete control over the collateral, and therefore have borrowings at a lower cost. However, the liquidity still affects gold loan companies adversely.

More competition and substitute financial products

Today, companies giving gold loans are competing not only with other competitors, but also against financial service providers. The unorganized market is thrice the size of the organized gold loan market, and it is still growing with a lot of potential. The unorganized sector is being encroached by players from the organized market.

In the recent few years alone, the top gold loan companies are facing geographical saturation point, and are considering other products like microfinance and SME loans to maintain their growth. Customers who previously had to pledge gold to get emergency cash, now do not need to give any collateral. Lenders are now partnering with Fintech companies to use advanced technology to influence the market.

Microfinance firms

Nowadays, loan providing companies are facing stiff resistance from another front: microfinance firms. These firms are making it easier for customers to get small unsecured loans, even if they do not have a formal credit history. Banks have also entered the microfinance sector through business correspondence, thereby augmenting financial inclusion. Gold holding per loan has stagnated recently due to this rising competition, and is now seeing a downward trend.