Gold has been a good hedge against inflation for decades. The reason: As inflation rises, the rupee will buy you less, but gold?s price in the long term will only rise, meaning that the investment in the precious metal doesn?t shed value. Big investors also seek refuge in the haven status of gold in times of crisis, such as war and terrorism, partly because even if a local currency loses its sheen, gold will still be priced according to the global standards. It is also less volatile than other investment tools such as stocks, and offers an assured return in the long run. Moreover, gold is considered a global currency, and even if nobody accepts your currency, they will still buy your gold. It offers you a wise opportunity to diversify your investment portfolio and manage risks. There are many ways of investing in gold and the most popular are through jewellery, gold bars and coins, exchange-traded funds, gold funds, e-gold and futures market.

Jewellery

Step into any jewellery shop, and you can come out an investor. In a country where the banking system is way short of connecting the entire population, jewellery offers an opportunity to rural masses to park some money in gold, mainly due to the wide-spread presence of jewellery shops.

Bars and coins

The easiest way is to go to a designated outlet of state-run MMTC, banks, including SBI and ICICI Bank, or local jewellers to buy gold bars and coins. Some refiners from Europe, South Africa and Switzerland also sell gold bars and coins but they prefer bulk buyers to retail ones. These bars come in many sizes, such as 50 gm, 100 gm, 1 kg, 1, 10, 100 or 400 ounces.

In India, the 100-gm bars are gaining popularity now. Thinner gold bars are at times referred to as gold biscuits. Buyers will purchase gold bars at the prevailing market rate, plus sales tax.

The problem with MMTC and banks is that they won?t take back bars and coins, if you wish to offload later. But jewellers buy such items and offer you prices based on the current gold rates. Moreover, banks and MMTC will charge at least 10% more for the same quantity of gold bars and coins than a neighbourhood jeweller. However, while the purity of gold remains an issue with anonymous jewellers, MMTC and banks usually provide good-quality products. It?s very difficult to decipher whether the product is 99.5% pure or has the highest purity level of 99.9999%, so buyers can insist on products having Hallmark certification or are certified by the Bureau of Indian Standards.

ETF

Exchange-traded fund products are the investment tools that trade like shares, but are backed by physical holdings of the item. They are traded on the National Stock Exchange and the Bombay Stock Exchange and offer investors an opportunity to participate in the gold market without taking physical delivery. Gold exchange traded funds are like mutual funds but are focused only on one asset class?gold. One needs to have a demat account to park funds with an ETF. The ETFs sell units and each of them will cost a specified amount, known as the net asset value. Globally, ETFs usually offer units equivalent of one ounce of physical gold each, while in India some are offering units equal to as low as one gm. One ounce equals 28.35 gm.

The value of an ETF unit is determined by dividing the total value of gold by the number of units, minus expenses charged by a particular fund. India first launched gold ETFs in 2007 and currently has close to a dozen of them. Fund houses, including UTI Asset Management, Kotak Mahindra Mutual Fund, Benchmark Asset Management, Reliance Capital Asset Management, Quantum Mutual Fund, Religare Mutual Fund and SBI Mutual Fund offer gold ETFs in the country.

Gold funds

These are mutual funds that invest in gold ETF units and cater for usually very small investors, especially in times of soaring gold prices. Such funds offer systematic investment plans (SIP) in which an investor, wishing to park as low as R500 a month, can also benefit through purchases of gold on paper in a small quantity. A gold fund investor doesn?t need to hold a demat account. SBI Mutual Fund, Reliance Gold Savings, Kotak Gold and Quantum Gold Savings offer such investment options.

E-gold

This is an investment tool that allows one to trade and deploy funds in gold just like shares, and offers commodities in small denomination of even one gm. The clearing and settlements are based on the T+2 cycles formula. E-gold provider offers a platform for buying and selling physical gold by providing an option of holding it in Demat form. It cuts costs of lockers and insurance and offers a transparent price structure. The National Spot Exchange offers an e-gold investment platform. An investor interested in e-gold will have to open a beneficiary and a trading account with any of NSEL?s designated depository participants, including Karvy, Religare, Goldmine and IL&FS. If the unit holder wants to take the delivery of gold, he can surrender such units to the exchange and get the delivery at specified centres at his discretion.

E-gold offers easy entry and exit for investors who look for transparent pricing and seamless trading, lower holding cost, easy liquidity and a pan-India platform.

A major advantage of exchange-traded funds, gold funds,e-gold and futures market is that there is no risk of commodity custody or theft.

Gold futures

To invest in gold futures, one has to approach a brokerage house to open a trading account, which involves an initial deposit, part of which goes for the margin money required by an exchange for allowing him to trade. The investor will have to trade in a lot size, or the minimum volume of the commodity of which he has to buy a futures contract. The advantage of a futures contract is that one has to park only the margin money, which usually varies from 5% to 10% of a contract value. The investor will have to pay some brokerage fees as well as start-up charges. Delivery of gold in a futures contract, however, involves gold certification and accreditation by an assayer appointed by the exchange, resulting in higher transaction costs as various taxes are also taken into account. But the futures market also offers the investor an opportunity to sell early if he believes prices will fall.The Multi-Commodity Exchange is the country?s largest bourse for gold futures trading.