Why should you invest in gold? Read below to learn how to invest in gold

January 14, 2022 Trading 4 min read
Gold Investment in India

During this auspicious occasion of Makar Sankranti, Indians look out to decorate their portfolios by investing into gold, believing it as pious, during the festivals. As we all know that buying Gold is not new to Indian households. Research indicates that India houses the world’s largest household gold reserves. Gold is bought on special occasions like weddings and childbirths. Although gold is a physical asset much like real estate, its shine hasn’t been dulled by financial or digital investment assets.

Gold investment continues to be going strong and for good reasons.

Why should you invest in gold?

Inflation helps:

As gold is a primary commodity, it gets more expensive with rising costs, providing lucrative returns in an inflated economy.

Exchangeable:

Gold is a currency in its own right. Even when you don’t have an acceptable fiat currency, gold can be exchanged for a whole lot of utilities. This makes gold particularly beneficial when a currency collapses or gets overthrown.

Limited supply:

Gold is a precious metal and rare. With limited scope for finding more, gold will only become more precious in the future. Moreover, gold cannot be produced artificially. Lesser supply and higher demand have always led to price appreciation, making gold investment a good long-term wealth appraisal tool.

Liquidity:

One can easily buy and sell gold hoardings, making it a highly flexible and liquid investment.

Utilities:

Gold finds its usage in various industries like space engineering and electronics, and all these offerings are big-ticket industries. This ensures that gold will always be in demand. Moreover, gold can be used as jewelry as well.

Safety cushion:

For those who invest in the equity market heavily, gold can act as a safety cushion for emergencies when the stock market crashes. Gold investments have been known to perform better during bear markets.

How to invest in gold?

There are various ways to make gold investments. Here are the five best ways to make a jewelry gold investment in India: 

Buy physical gold: 

Gold bullion or coin is one way to go about it. However, this may come with the anxiety of misplacing or losing the metal. Also, you’ll need adequate storage.

Gold ETFs or Gold Exchange Traded Funds: 

A gold ETF is listed on the stock exchange and can be bought and sold by stock market investors. Gold ETF investments also denote possession of real gold with 99.95 percent purity, which can be converted to physical assets upon reaching 0.5-1kg worth of gold units.

Gold funds: 

A gold mutual fund is a scheme that invests in Gold ETFs and maps the movement of ETFs to determine returns. This is more suitable for gold investment done solely for monetary benefits and not for actual gold possession. In a gold fund investment, one doesn’t have to purchase a minimum of 1 gm that ETFs require. SIP options begin at INR 1,000.

E-gold: 

The National Spot Exchange Limited (NSEL) launched e-gold to enable investors to buy gold in smaller denominations (1mg, 2mg, etc.). A separate Demat account is needed for e-gold investments and the gold mirrors prices of the Indian gold market. This is contrary to ETFs which are often influenced by the international market as well.

Sovereign gold bonds: 

The Government of India and Reserve Bank of India have launched sovereign gold bonds, which are government securities that issue gold in denominations of 1gm. You can get fixed interest every fiscal year with cash on maturity. 

Gold vs Cryptocurrency: Which is a better investment?

Cryptocurrency has emerged as the new financial asset you need to get your hands on. It is a blockchain-powered currency that facilitates peer-to-peer transactions and eliminates the need for a middleman. Posing various threats to fiat currencies, cryptocurrencies are transparent, accounted for, and limited in supply given the ‘mining’ complications. 

In the recent past, cryptocurrencies like Bitcoin, Dogecoin, and Ripple have delivered more than 100 percent returns.

Cryptocurrencies perform better in a falling market and thus provide a haven to investors. Not so different from gold in this aspect! Moreover, bitcoin has been termed “The Digital gold”.

Here’s a comparison between gold and cryptocurrencies to understand them better.         

  Gold Cryptocurrency
Accessibility Easily accessible for all, has been around longer Requires technical and digital knowledge, not as popular
Legality Safer and more transparent Can be rigged using quantum computing
Usage

 

Has physical usage, sought-after raw material Only a currency
Rarity

 

Cannot be produced in a lab, limited mines on the planet Only 21 million units of Bitcoin in circulation
Liquidity

 

Can be sold online as well as offline Can be sold online, offline acceptance is yet to come in most countries
Volatility

 

Lesser than equities, a long-term safe investment Too new to predict long-term prospects, is more volatile than gold

Both these asset classes are rare, transparent, and liquid. While they have often been touted against each other, we believe they are not rivals but friends. Investing in cryptocurrency would become more reliable with advancements in technology. 

Gold vs Mutual Funds: Which is a better investment?

Mutual funds are tools that pool in money from various investors and then invest in the share market and bonds to generate returns.

Let us compare the two.

  Gold Mutual Funds
Liquidity Yes Not if there’s a lock-in period
Relation with the stock market Resistant to a great degree Directly proportional
Minimum investment You would have to spend upwards of INR 4,000 to purchase 1gm of 24 Karat gold. SIP available with minimum INR 500.
Investment charges None on physical gold, same as mutual funds in the case of gold funds and ETFs Brokerage fees
Risk factor Less; gold always appreciates in the longer run, given its acute supply and high demand. High
Returns Stable Can deliver more than gold

Mutual funds are riskier and more volatile, however, that also opens new avenues for aggressive growth.

There is no one-size-fits-all when it comes to investing. Weigh in on all your options before making the decision.

FAQs

1) Should you make gold investments?

Yes, gold can prove to be a good hedge against inflation and bear markets.

2) Are ETFs better than gold funds?

Gold ETFs allow you to get ownership of gold, while gold mutual funds are purely for money appreciation with no real gold ownership. However, gold fund investments are more affordable, starting at INR 1,000 a month.

3)What are the factors that affect the gold rate in India?

The Indian gold rate changes because of the international gold rate, USD-INR currency fluctuation, and customs duty, among other factors.


4 Comments
  • Kuldeep Verma says:

    Nice Content Sir, I find evergreen content brings the most success as a blogger.

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