Ah the shimmering shine of Gold and its endless charm!
Not to forget the innumerable wars fought and explorations carried out in ancient times over this precious element by Mother Nature!
The shiny yellow metal has acted as a good store of value and a symbol of prestige over times immemorial. From the ancient kings in their palatial storehouses to today’s Indian housewives in her humble double-lock tijori, Gold has found itself a respected place in the form of wealth over the years.
Previously used in ancient times as a medium of exchange, Gold now finds a place as an important avenue of investment in every investor’s portfolio.
Many first time investors are intrigued by the shine of this precious metal but don’t know where to begin investing in it. Today, plenty of options in physical gold with high liquidity rule the market – bullion, jewellery, coinage, works of art, etc. Investing in Gold never required any specialized knowledge, thus making it a very simple and straightforward investment mode amongst all classes of the society alike.
One of the best contentions to invest in Gold is the stability that it provides as a form of investment. The rise in value of Gold is in direct proportion to the market inflation trends – which means that there would be no drastic fall in the value of Gold ever. There is a greater inclination for harder and more stable assets like gold during times of currency down-performance or stock market crashes. Hence the inverse relationship makes it a perfect hedge against any form of market volatility – offering reasonable returns in such times.
Take for example the current Russia-Ukraine war – where prices of shares and other commodities have been on a downfall, the prices of gold have been skyrocketing ever since the crisis took shape. Even if the world were to lose interest in shiny objects (as if it ever will happen) the price of gold shall remain almost the same, owing to its limited reserves left in the earth.
Jewellery has been the topmost preference for every Indian investor when it comes of investing in Gold. To save on making charges, many also prefer to park their money in gold bars or coins. Certain jewellers also have a monthly deposit scheme for a fixed tenure which allows them to redeem equal value of gold against the money deposited. However, the higher making charges and their irrecoverable nature makes jewellery a lesser attractive option for serious investors.
As with any other investment avenues evolving from physical to demat, Gold too has seen newer forms of investment options suited for every investor’s pocket – be it physical or in paper. Digital Gold offered in virtual form by platforms such as PayTM, Google Pay, Freecharge, etc and Sovereign Gold Bonds (SGBs) issued by the Government of India now also offer periodic dividend yields, saving the investor from the hassle of safekeeping.
Investors well versed with timing the market well can also consider investing in Gold Futures, where the investment is done against a pre-determined future price. However, that comes with significant unpredictable risks and volatility due to its sheer unpredictable nature.
Multi-Commodity Exchange (MCX) also enables investors to trade in gold through futures and options.
Also a viable option for middle-class investors to invest in Gold would be to start an SIP from a meagre Rs.500/- month in any of the gold-traded mutual funds and ETFs from fund houses like Axis, SBI, Nippon, etc. Such a method of investment eliminates the worry of safety and also can be easily traded as with physical gold. Investors thus end up significantly gaining in value by obtaining dividends than by possessing mere physical gold. This option is best suited for investors like students having smaller capital wishing to diversify to gold.
Sovereign Gold Bonds (SGBs) are a form of digital gold issued by the Reserve Bank of India that assure a 2.5% per annum return with a lock-in period of 8 years. The quantity that can be bought ranges from anywhere between 1 gram to 4 kilograms in this form. The proceeds of holding them unto their full maturity value are also exempt from capital gains tax, which also makes them quite a tax-efficient form of investment!
Online payment platforms like Paytm, Mobikwik, Freecharge, PhonePe and others now offer 24 karat digital-gold purchase options in virtual form, that allow the investor to accumulate value over a period of time and redeem it anytime to convert into physical form. Such transactions are carried out through various providers thus authorized such as MMTC-PAMP, SafeGold and others. The best thing about this option is that gold can be bought for a value as little as Rs. 1 and has no making charges involved. It is linked to real-time gold prices and hence can be liquidated anytime.
A flip side to the story can be, that appreciation in value of gold can slow when the market tends to engage in a bull run. Gold can be an important addition to an investment portfolio designed to battle all storms. Take for example, Gold prices rose by just a little under 2% during the Bull Run just after the coronavirus pandemic. But, if we see it from a different perspective, this also could be the best time to invest in gold during such times of negative sentiment and wait for the price appreciation to work its magic!
Nonetheless, it is advisable for every investor to leverage some amount of his investments into gold or gold-derived instruments in order to balance out his portfolio evenly and in order to maximise returns.
Gold, although cannot necessarily be a source of passive income on investments; but certainly provides excellent liquidity and bullet-proofing against inflation.
One cannot simply choose to overlook gold while building a well-balanced portfolio in the long run!