Traditionally in Indian household, Gold has got a special importance. It takes the form of blessing from parents in marriage of their daughter as Stri Dhan. It takes the form of tradition and culture of a family when it is transferred from one generation to another. In India, Gold and Real Estate are two very sensitive asset classes for women which go beyond being form of investment. 

In current times though, should Gold be part of your asset holdings? If yes, how much Gold we should buy? And in what form? 

In today’s blog, lets dwell more in to this Yellow Metal and lets see what it has to offer.

Why should you invest in Gold?

• Gold has always gained in event of financial crisis, be it the onset of pandemic or war or economic downturn. Just notice in graph given below how the onset of pandemic has given rise to Gold price. In Sept 2020, when Pandemic was at its peak, the Gold prices has reflected the same. 

(Courtesy : myloancare.in) 

• Gold provides stability to your investment portfolio. It shows a negative or very loose correlation to Equity, another most important asset class for investment.  In the phases where there was high inflation and economic slowdown like in 2008-2010, you can see Gold prices are on rise just when NIFTY index was showing poor or negative returns. So in such scenario, having Gold in your investment portfolio, helps you to sustain the Equity Downturn. This is one of the reasons why Gold is also referred to as ‘Hedge’ against inflation.

(Courtesy : equityfriend.com) 

What options I have for buying Gold?

Gold investment should form around 10% of your overall investment portfolio. There are multiple options in which you can purchase Gold.

• Our Traditional way – from a Jeweller
  • Remember clearly that you are buying this Gold for Investment Purpose and don’t get emotionally attached to it. 
  • You should buy Pure Gold in the form of Gold Coins, Biscuits as they will have minimum wastage when you will need to sell. 
  • Obviously, buying jewellery is not a good choice as we all know there are making charges and other alloy and metals used will lessen the resale value.
  • One of the biggest challenge to buy Gold in this way is the authenticity of Gold purchased. How do we ensure the Purity of the Gold. ‘Hallmark’ is one of the standards you can look for.
  • Next comes the challenge of safety and storage of the Gold coins you have purchased.
  • Physical Gold market is not regulated. That means if you go to sell the same Gold at two different jewellers, they may give you totally resale value. And as we know it is very difficult to prove your point regarding purity of this gold, as they may have an upper hand in the deal.

The better way may be to buy ‘Paper Gold’ in next two options.

• From Government –Sovereign Gold Bonds(SGB)
  • SGB are government securities in terms of Gram of Gold. So you pay from your bank account to purchase Gold at prevailing price which is predeclared by Government. Maximum of 4 Kg worth Gold can be purchased by an individual.
  • The Bonds are issued by Reserve Bank on behalf of GOI. The Bonds are held in the accounts of RBI or in demat forms, eliminating risk due to loss of certificates etc.
  • These bonds can be purchased online.
  • These bonds earn a predeclared interest on the money invested. Currently 2.5% is paid as interest on the nominal value. Interest is paid twice in a year. This interest eared is taxable in the hands of investor.
  • The Bonds maturity period is 8 years. However, one can sell these bonds in secondary market after 5 years. As maturity, money received is entirely Tax Free in the hands of investor.

• In form of ETF(Exchange Traded Funds) or MF (Mutual Funds)
  • E-gold can be purchased in Secondary market in terms of ETF just like you buy any share of Company. So, you must have a Demat account to buy ETFs.
  • If you donot have demat account, you can take the route of Gold MF to invest in yellow metal. 
  • You get number of units when you purchase ETF or MFs. Price per unit is linked to market price of Gold.

Whichever is your preferred way of investing into Gold, there is always a special place for ‘Gold’ in your financial journey.  So ladies, start investing ……