Gold as an investment

It’s natural and even prudent for an investor to wonder if Gold is a good investment or not. Gold is a unique asset: highly liquid, yet scarce; it’s a luxury good as much as an investment. Gold is no one’s liability and carries no counterparty risk. Some points to consider for investing in Gold:

  1. Gold acts as a diversifier and a vehicle to mitigate losses in times of market stress.
  2. It can serve as a hedge against inflation and currency risk. Over time, fiat currencies – including the US dollar – tend to fall in value against gold.
  3. Gold is a mainstream asset driven by many factors, not just investment demand.
  4. Gold provides competitive returns compared to other major financial assets over long term.
  5. Gold offers downside protection and positive performance.

The combination of these factors means that adding gold to a portfolio can enhance risk-adjusted returns.

Portfolio allocation analysis indicates that investors who hold 5% to 10% of their portfolio in gold can significantly improve performance.

Ways to invest in gold

The following are the options in which you can invest in gold in India.

  1. Physical Gold :
    1. Advantages
      • Emotional booster.
      • Easy to get Loan against Gold
    2. Disadvantages
      • Risk of theft.
      • A high entry barrier as there is a minimum amount involved.
      • Cost of storage, and
      • Making charges
    3. You can buy physical gold in the form of
      • Jewellery
      • Bars and coins
  2. Digital/Online Gold:
    1. Advantages
      • No bank locker/any other storage costs.
      • No security issues.
      • No anxiety about purity. Assured purity in gold – 999/995 LBMA approved.
      • Lowest minimum amount.
      • Highly liquid.
    2. Disadvantages
      • There is process to convert to physical gold
      • No-loan against such gold holdings
    3. You can buy Digital/Online Gold in the ways as follows:
      1. Digital gold
        • The issuing company issues a holding certificate in your name.
        • You don’t get physical possession.
        • You can exchange it for physical gold anytime.
        • No minimum investment
        • One of the most trusted names is MMTC
      2. Gold ETF
        • Traded like a stock on the stock exchange.
        • You need a Demat account to invest in an ETF.
        • You pay small brokerage charges, depending on your broker.
        • The ETF price includes an AMC fee, depending on the AMC.
        • It gives the option of smallest minimum investment amount – 1/10th of a gram.
      3. Gold mutual funds
        • One of the biggest advantages is that you get the option to create an automated SIP
        • The minimum amount is very low.
        • The UNIT price includes an AMC fee, depending on the AMC.
      4. Gold sovereign bond
        • Issued by RBI.
        • In addition to the potential increase in price of gold, you get an interest of 2.5% per annum.
        • You can purchase a minimum of 1g gold, and a maximum of 4kg
        • The tenor of the scheme is 8 years, with exit options starting after 5 years.
        • You can invest in a SGB from few banks or from your de-mat account.
        • Approximately 2 weeks after launch, these SGBs start trading on NSE/BSE.
        • Then, you can trade like any other stocks or ETFs.
      5. Gold monetisation scheme
        • Not a way to purchase gold.
        • It is a government scheme that allows you to earn interest on gold already owned by you.
        • You have to deposit a minimum of 30g.
        • You earn an interest between 2 and 2.5% depending on your tenure.
        • The tenure can be between 3 and 12 years long.
      6. Gold Petal on commodity exchanges
        • You can buy a Future contract and convert to delivery at an opportune moment.
        • Physical delivery available in multiples of 8 grams.
        • Delivery possible in demat or physical form.
        • You can trade like any other stocks or commodity on exchanges.

Add a Comment

Your email address will not be published.