Owning gold is very important, and desirable, for all investors. (Please click here to read more about investment in gold - "Shine matters - Gold is not old")

But the golden question is - how should one invest in gold?

(Now, there is a difference between buying gold for ornamental value, and buying gold as an investment. In this article, I am focusing on buying gold as an investment)

The facts say that most of the "investment" in gold in India is in the form of jewellery. But that is not the best way to invest in gold.

Let's examine why.

Making Charges

When jewellery is made, the jeweler charges a hefty making charge. It can range from Rs. 60 per gram to Rs. 150 per gram. (The lower end of making charges is applicable usually in case of non-hallmark gold, whose purity is always doubtful!).

Let's say that the making charge is Rs. 100 per gram. With the price of gold being Rs. 1000 per gram, it is a whopping 10%! This means that if you want invest Rs. 100, your actual investment would be only Rs. 91. Now that's ridiculous!

Liquidation Charges

Now, let's consider the time when you want to liquidate your gold holding by selling it. If it is in the form of jewellery, you would have to forego another fraction of the value in the form of "melting charges" or "melting losses". And this is around 5% of the value.

Purity

The gold used in jewellery is either 22 Carats or lower. This means that a part of the weight of the jewellery is not gold. You want to invest in gold, and not a mixture of metals, right? Then, why buy something that is not pure gold?

Authenticity

When bought as jewellery, gold is bought from regular jewelers. This means that you rely purely on the expertise (and honesty!) of the jeweler as far as the quality of gold is concerned. Unless Hallmark gold is used, there is no certification backing the purity of the gold. And this means that you can get a rude shock when you want to liquidate your gold holding.

So, how does investment in gold sound? 10% making charges, 5% melting charges and doubtful quality!

Would you ever invest in a mutual fund (MF) which charges 10% entry load, 5% exit load, and whose quality of investments is doubtful? Of course not, because it is not wise!! The same way, investing in gold in the form of jewellery is not wise. In fact, it is the worst way to invest in gold due to the reasons discussed earlier.

So, how should one invest in gold? There are multiple options:

1. Gold coins
2. Gold bars
3. Gold Exchange Traded Fund (ETF)

Each of these is better than buying jewellery. Of course, each method has its own pros and cons, but that is the topic of another article - "Get the glitter - How to buy gold".

Other articles you might be interested in:

• Shine matters - Gold is not old
• Real Estate Investment Trusts (REITs)
• ELSS is not for someone else
• Are ULIPs a costly form of term insurance plus MF investments?
• Best Performing Mutual Funds (MFs) of 2007
• Goal Based Investing
• Direct investment in Stocks versus Mutual Funds (MFs)?
• Tax sops for Post Office schemes, bonus on PO MIS
• National Savings Certificate (NSC)